HES acquisition removes a key overhang for Chevron: analyst

Investing.com -- Chevron’s acquisition of Hess (NYSE: HES) removes a major uncertainty and strengthens its long-term outlook, according to Morgan Stanley, which resumed coverage of the stock with an Overweight rating and a $174 price target.

“Not only does this remove a key overhang, but also marks an important strategic step for CVX by diversifying and enhancing the company’s growth outlook and portfolio duration,” analysts said.

Morgan Stanley sees the deal as about 3.5% accretive to 2026 free cash flow per share, rising to 8% later in the decade. The bank now forecasts 2025–30 cash flow growth at 5% and free cash flow growth at 8%.

Chevron (NYSE: CVX) reported second-quarter earnings per share of $1.77, beating the consensus of $1.71, and operating cash flow per share of $4.81, ahead of Morgan Stanley’s $4.45 estimate.

Production reached 3,396 thousand barrels of oil equivalent per day, with Permian volumes hitting the company’s 1 mboe/d target. Chevron now expects full-year production toward the top end of guidance, excluding Hess.

“CVX’s recent acquisition of HES, the startup of TCO, and cost-cutting plans should help close the gap on growth, at least over the next 2-3 years,” Morgan Stanley said, noting that Exxon (NYSE: XOM) has outperformed Chevron by 87% since the start of 2021.

While Chevron’s long-term organic growth remains below peers, “we believe this is balanced by the fact that CVX offers outsized rate of change into 2026,” Morgan Stanley said, citing a forecast 2026 free cash flow yield of 8%, compared to 6% for Exxon and 7% for ConocoPhillips (NYSE: COP).

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