On Thursday, Piper Sandler, a financial services firm, increased its price target for Chevron Corporation (NYSE:NYSE:CVX), a major player in the oil and gas industry. The price target has been raised to $204 from the previous $180 while maintaining an Overweight rating on the stock.
The revised price target is based on a balanced approach, incorporating a 50/50 weighting between a free cash flow (FCF) yield target for the fiscal year 2024 and a target FY24 EBITDA multiple of 6.5 times. This assessment is made under the assumption of a projected oil price of $80 per barrel for Brent crude.
Piper Sandler also highlighted its long-standing preference for Exxon Mobil Corporation (NYSE:XOM) over Chevron. However, the firm pointed out that the ongoing arbitration case presents a significant variable in Chevron's outlook. The case's outcome could substantially affect Chevron's valuation in comparison to Exxon Mobil, potentially creating a structural valuation gap between the two companies.
The analysis suggests that the market is currently pricing in a relatively high probability that Exxon Mobil will emerge victorious in the arbitration, given that Chevron is trading at approximately a 3% discount to Exxon Mobil based on the 2025 estimated FCF yield. The outcome of the arbitration is crucial, and clarity on this matter is expected to have considerable influence on investor sentiment toward Chevron.
Piper Sandler indicates that if the arbitration case concerning Hess Corporation (NYSE:HES) is resolved in favor of Chevron, there could be a significant opportunity for Chevron's stock to narrow the valuation gap with Exxon Mobil. Until then, the uncertainty surrounding the case makes it challenging to commit new investments in Chevron's shares.
InvestingPro Insights
In light of Piper Sandler's updated price target for Chevron Corporation (NYSE:CVX), it's worth noting some key metrics and insights from InvestingPro. The company's market capitalization stands solid at $290.79 billion, and it boasts a P/E ratio of 13.73, which adjusts to 12.77 when looking at the last twelve months as of Q4 2023.
These figures underscore Chevron's substantial presence in the market and its valuation relative to earnings. Moreover, Chevron's dividend yield as of early 2024 is 4.17%, reflecting its commitment to returning value to shareholders, a sentiment echoed by the fact that Chevron has raised its dividend for 36 consecutive years, a testament to its financial stability and investor-friendly approach.
Two InvestingPro Tips that are particularly relevant given the context of the article include Chevron's low price volatility, which may appeal to investors seeking stability in their portfolios, and the company's position as a prominent player in the Oil, Gas & Consumable Fuels industry.
The latter is crucial as it provides context to the price target set by Piper Sandler and the competitive landscape with Exxon Mobil. Chevron's consistent profitability and ability to maintain dividend payments for 54 consecutive years are also noteworthy, especially when considering long-term investment decisions.
For those interested in a deeper dive into Chevron Corporation's financial health and market position, InvestingPro offers additional tips and insights. Utilize the coupon code PRONEWS24 to get an extra 10% off a yearly or biyearly Pro and Pro+ subscription, and discover many more InvestingPro Tips that can help inform your investment strategy.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.