Chevron Corporation (NYSE:CVX) received an upgraded ‘Buy’ rating from analysts at Bank of America, who cited the “unwarranted collapse” in the energy company’s shares following its weak third quarter results.
The share price presents a “tactical opportunity” for investors after Chevron stock fell 9.6% week-over-week to about US$145.
They also upped their price target on the stock from US$190 to US$200.
The BoA analysts pointed out that since October 19, Chevron has lost about $47 billion in value, greater than 90% of the pre-deal value of its recently announced acquisition of Hess.
“Bigger macro factors are roiling the broader equity market but a response to earnings that leaves CVS shares 15% lower since announcing the Hess merger looks overdone,” the analysts wrote in a note to clients.
“In our view, this makes little sense, not least when considering the positive impact Hess has on CVX’s outlook and for a stock often seen as a preferred play on soil and ordinarily seen as defensive against during times of geopolitical uncertainty.”
The analyst wrote that the dilemma for investors is that Hess shares are now inextricably linked to Chevron’s performance with little likelihood the deal will not close in their view, and there is nothing in the merger agreement to account for a collapse in acquisition currency.
“Even if CVX management was encouraged to re-engage with a higher exchange ratio, the loss of value since the deal was announced leaves CVX back at levels we believe warrants another look,” they wrote.
“A preliminary assessment of the accretion in long-term value that now accrues to CVX we upgrade our rating to 'Buy,' with a revised price objective of $200 per share.”
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