Chevron stock has been upgraded by analysts following the energy giant's Monday announcement it acquired PDC Energy in a $6.3 billion deal, bolstering its U.S. oil and gas operations.
Chevron said Monday it was acquiring PDC Energy, giving the California-based oil major a stronger foothold in the resource-rich Denver-Julesberg Basin, bolstering Chevron's U.S. onshore holdings. The deal weighs in with a total enterprise value of $7.6 billion, including PDC's $1.3 billion in assumed debt. The combination is expected to close by the end of 2023.
Chevron stock jumped 2.9% to 156.86 Tuesday during market trade. CVX on Monday dropped 1.8% to 152.44.
On Monday, CFRA analysts Stewart Glickman upgraded Chevron stock to a "Buy" rating up from "Hold." Glickman maintained a 172 price target on CVX shares, saying he estimates the deal would boost CVX's share count by 4.6%.
HSBC analyst Kim Fustier on Tuesday also upgraded Chevron stock to a "Buy" rating maintaining a 189 CVX price target. Fustier said that even as shareholder returns from energy companies could be stunted this year as oil and gas prices fall from the highs of 2022, CVX could offer "an attractive distribution yield following the stock's recent underperformance."
Tuesday morning, Morgan Stanley analyst Devin McDermott raised the price target on Chevron stock to 198, up from 192. McDermott kept an "Equal Weight" rating on the shares.
Chevron Stock: The Deal
Chevron said it expects the deal to add to "all key financial measures" within the first year after closing. CVX forecasts about $1 billion in free cash flow per year with Brent crude at $70 a barrel and Henry Hub natural gas at $3.50 per thousand cubic feet.
Chevron also expects the acquisition to result in around a $1 billion increase in average annual capital spending, and boosted its spending guidance to $14-$16 billion annually through 2027. The previous forecast was $13-$15 billion.
"PDC's attractive and complementary assets strengthen Chevron's position in key U.S. production basins," CEO Mike Wirth said Monday.
U.S. oil futures were up 1.4% to above $73 per barrel Tuesday. Meanwhile, U.S. Henry Hub gas futures hovered around $2.52 per million British thermal units on Tuesday.
Chevron stock ranks 13th in IBD's Oil & Gas-Integrated industry group. Shares have a 48 Composite Rating out of 99. The stock also has a 34 Relative Strength Rating. The EPS Rating is 65 out of 99.
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