On Wednesday, Bernstein SocGen Group revised its stance on Chevron shares, downgrading the energy giant from Outperform to Market Perform. The firm adjusted Chevron's price target to $167 from the previous $183. The decision comes amid a backdrop of challenging oil market dynamics and a reassessment of the upcoming year's oil prices.
The downgrade reflects Bernstein's analysis of historical oil price trends and recent events, including what they describe as "poor messaging" at the June OPEC meeting. The firm anticipates a weaker demand for OPEC oil and has consequently lowered its 2025 West Texas Intermediate (WTI) oil price forecast by $5 per barrel to $75, and Brent oil by the same amount to $78.
Bernstein's revised outlook also factors in updated natural gas price projections and an increased crack spread for integrated oil companies. The adjustments are expected to result in a 7% to 10% reduction in 2025 EBITDA for the sector, excluding LNG companies. Although this reduction is described as modest, it has influenced Bernstein's decision to shift focus from Chevron to Hess Corporation (NYSE:HES).
The analysis suggests that the pending merger between Hess and Chevron presents an arbitrage opportunity. If the merger is successful, Hess shareholders are set to receive 1.025 Chevron shares for each Hess share, which Bernstein projects could yield a 16% upside for Hess. Even if the merger were to fall through, Bernstein believes Hess's share price would remain robust, supported by significant year-on-year growth in volume and EBITDA.
Bernstein maintains a positive outlook on Hess, assigning an Outperform rating with a price target of $172 per share, which implies approximately a 16% upside potential. In contrast, the firm's outlook for Chevron is more reserved, with an estimated 6% upside potential and a price target that is 2% below the consensus on EBITDA.
Despite the downgrade for Chevron, Bernstein reiterated its Outperform ratings for Exxon Mobil (NYSE:NYSE:XOM), Diamondback Energy (NASDAQ:FANG), and ConocoPhillips (NYSE:NYSE:COP), along with Market Perform ratings for EOG Resources (NYSE:NYSE:EOG), Devon Energy (NYSE:NYSE:DVN), Kosmos Energy (NYSE:NYSE:KOS), and Apache Corporation (NYSE:NASDAQ:APA).
In other recent news, the Exxon Mobil and Chevron merger dispute over the acquisition of Hess Corp , valued at $53 billion, is nearing resolution as the final member of a three-person arbitration panel gets selected. This marks a significant step in the long-delayed process. The panel will deliberate on Exxon's claim, asserting its right of first refusal over Hess's assets in Guyana.
In addition, the Exxon-led consortium in Guyana, which includes Hess Corp and CNOOC (NYSE:CEO) Ltd, reported a net margin of 56% in 2023. The Stabroek offshore oil venture's revenue increased by 23% from the previous year, totaling $11.25 billion. The net profits were distributed among the partners as follows: Exxon Mobil netted $2.9 billion, Hess Corp $1.88 billion, and CNOOC Ltd $1.52 billion from the joint venture.
On another note, John Hess, CEO of Hess Corp, has been appointed as an independent director to the board of Goldman Sachs (NYSE:GS). His new position will see him serve on the board's compensation, governance, and risk committees.
Citi has raised its price target on Hess Corp. to $160 from the previous $145, while retaining a Neutral rating on the stock. This adjustment is in anticipation of the pending acquisition of Hess Corp. by Chevron Corporation (NYSE:CVX). These are recent developments in the ongoing saga of the Hess-Chevron merger.
InvestingPro Insights
In light of Bernstein's recent focus shift to Hess Corporation (HES), real-time data and InvestingPro Tips provide additional context for investors considering HES's stock. According to InvestingPro data, Hess has a market capitalization of $46.23 billion and is trading with a Price to Earnings (P/E) ratio of 22.96. Notably, the company's P/E ratio adjusted for the last twelve months as of Q1 2024 stands at 22.45. Furthermore, Hess has demonstrated a robust gross profit margin of 75.4% over the same period, signaling efficient operations and strong pricing power.
InvestingPro Tips highlight Hess's consistent dividend payments for 38 consecutive years, which may appeal to income-focused investors. Additionally, the company is noted for low price volatility, which could be favorable for those seeking stability in their investment. Hess has also been profitable over the last twelve months and is expected to remain profitable this year, according to analysts.
For investors seeking a deeper analysis, there are additional InvestingPro Tips available, which can be accessed through the InvestingPro platform. With the use of coupon code PRONEWS24, readers can obtain up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, offering a comprehensive suite of tools and insights to aid in investment decisions.
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