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Highlights:
Citi has upgraded Chevron (CVX) to a "buy" rating and added it to its upside catalyst watchlist, noting its significant underperformance relative to ExxonMobil (XOM).
The valuation gap between Chevron and ExxonMobil could reach 20% by 2026-2027, reflecting a historically large discrepancy.
Chevron's exploration activities in Namibia are seen as a potential upside catalyst, with substantial value increase possible depending on drilling success.
Citi has upgraded Chevron (NYSE:CVX) to a "buy" rating, placing the company on its upside catalyst watchlist, citing its notable underperformance relative to ExxonMobil (XOM). Despite Chevron's recent stock gain of 1.1%, the company is trading at a significant discount compared to its major competitor. According to Citi’s analysis, this valuation gap could widen further, potentially reaching 20% by the 2026-2027 period, marking a historically large difference between the two companies' stock valuations.
Alastair Syme, an analyst at Citi, suggests that this gap warrants close attention, particularly in light of the uncertain outcome of the 2025 Hess (HES) arbitration. While the acquisition of Hess is anticipated to have a neutral impact on Chevron's overall value, Syme highlights its importance for Chevron's growth diversification. The outcome of the arbitration, expected in mid-2025, is unlikely to offer investors clear direction before then. However, Syme emphasizes that the valuation discount currently in place provides protection against downside risks, while offering significant upside potential in the event of a favorable outcome.
Additionally, Syme identifies Chevron’s exploration activities in Namibia as a promising catalyst for future growth. Chevron holds an 80% stake in the region, and recent exploration success by other companies has suggested a potential net present value increase of between $10 billion and $20 billion, should Chevron's drilling efforts in Namibia yield positive results. With the first well set to begin drilling soon, the results are expected by early February, adding another layer of optimism for Chevron’s long-term prospects.
This combination of favorable valuation and potential growth drivers, particularly in Namibia, positions Chevron as a company to watch closely, with both risks and opportunities shaping its future performance.
