Energy major Chevron (NYSE:CVX) has agreed to acquire Hess Corp. (NYSE:HES) in an all-stock deal worth $53 billion.
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Under the deal, shareholders of Hess will receive 1.0250 Chevron shares for each Hess share held by them. This pegs the enterprise value for Hess at about $60 billion. The strategic transaction enhances Chevron’s portfolio, and the combined entity is expected to increase production and drive free cash flow at a faster clip than Chevron’s present five-year outlook. Additionally, John Hess, the CEO of Hess, will join Chevron’s Board of directors.
Hess has promising assets located in Guyana and the Bakken Shale. This acquisition enables Chevron to return more cash to investors through higher dividends and increased stock buybacks. Impressively, the transaction is expected to drive pre-tax cost synergies of nearly $1 billion within a year of the acquisition’s completion.
The transaction has received approval from the Boards of both companies and is expected to close in the first half of next year. Separately, Chevron is slated to announce third-quarter numbers on October 27. Analysts expect the company to post an EPS of $3.62 on revenue of $51.38 billion for the quarter. In the year-ago period, Chevron’s EPS of $5.56 comfortably outpaced the Street’s expectations of $4.89.
The third-quarter numbers for Hess are also anticipated this week on October 25. The Street expects Hess to post an EPS of $1.22 on revenue of $2.67 billion for the quarter.
Is CVX a Good Stock to Buy?
Overall, the Street has a Moderate Buy consensus rating on Chevron. The average CVX price target of $190.62 implies a 14.3% potential upside.
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