Chevron-Hess Merger Approved: Should You Buy Before Earnings?

Key Points

• Chevron stock turned positive for the year after the FTC approved its merger with Hess.
• The deal won’t be completed until the conclusion of an arbitration hearing with Exxon Mobil.
• The approval likely gives CVX a solid floor; its fundamentals remain the reason to buy.  

With so many news items clamoring for investors’ attention, investors may not have noticed that the U.S. Federal Trade Commission (FTC) approved the merger between Chevron Corporation NYSE: CVX and Hess Corp. NYSE: HES. The approval came with the single stipulation that former Hess chief executive officer (CEO) would not join Chevron’s board of directors. 

The approval was widely expected but has been an additional headwind for Chevron shareholders. Since the announcement, the stock is up nearly 4% and is now trading positive in 2024. That’s still a far cry from rival Exxon Mobil Corp. NYSE: XOM which is up 21.9% for the year and is near its 52-week high, which would also be its all-time high.  

That may make CVX stock look quite attractive to value-hunting investors prior to the company’s earnings report on November 1, 2024. Here are some things for investors to consider. 

Chevron-Hess Merger Moves Forward, But Delays Persist

The FTC approval is a key step in finalizing the merger between the two oil giants, which was approved by Hess shareholders in May. But one hurdle remains. Chevron and Exxon Mobil are in arbitration regarding pre-emptive rights with Hess’ Stabroek Block assets in Guyana. 

Chevron is still confident that arbitrators will rule in the company’s favor. And when it is approved, Chevron will have increased influence in the oil markets. However, both sides acknowledge that the merger won’t be finalized for another 12 months.   

It's Still a Challenging Year for Oil Stocks 

On a broad basis, oil prices are still a reflection of supply and demand. That is, the market is well supplied, and there appears to be only moderate demand. It’s a contradiction to the consensus belief that the consumer is healthy.  

That's why investors in energy stocks were optimistic to start the year. The belief at the time was that the Federal Reserve would have cut interest rates several times by now. In theory, the cuts would stimulate demand and raise the price of oil. Instead, there’s been just one rate cut, albeit of 50 basis points, and it’s too early to tell if it will stimulate demand.  

Oil is also not following the script regarding geopolitical tensions. Despite much of the Middle East being on war footing, the price of oil has not spiked as it has at other times. One reason for that is that the OPEC+ nations have decided to lift their production freeze beginning in December.  

The Reasons to Buy CVX Stock Haven’t Changed 

Does the merger approval signal the all-clear for investors to buy CVX stock? Yes, in the fact that it probably sets a higher floor. Analysts give CVX stock about an 18% upside with a price target of $179.  

However, many analysts have been lowering their price targets on Chevron over the past 60 days. That’s likely due to concerns about oil demand, which is typical of the industry's cyclical nature.

However, there are reasons why Chevron is one of the most widely held dividend stocks. For starters, it is one of the largest integrated oil companies in the world. Even without the Hess assets, the company is well positioned to meet the world’s demand for oil, which is always cyclical and will eventually recover.  

In fact, the International Energy Agency (IEA) predicts that oil and natural gas will remain vital to the world’s energy needs through at least 2050 and likely beyond. Nevertheless, Chevron is also working purposefully to carve out a position in the renewable energy space. 

And Chevron is a fundamentally sound company. Its rock-solid balance sheet includes a debt-to-equity ratio of just 0.13. This gives the company the firepower to take on leverage in downtimes without compromising its commitment to shareholders.  

Proof of that commitment is found in the company’s commitment to its dividend. Chevron has increased its dividend for 37 consecutive years. The dividend has a current yield of 4.37% and has been growing at an average pace in the last three years that’s more than double the current rate of inflation.