BofA upgraded Chevron (NYSE:CVX) to Buy from Neutral, raising its price target for the stock to $200 from $190 per share in a note to clients on Monday.
Analysts told investors that the tactical upgrade is due to the "overreaction" to the company's third-quarter results, which is overdone.
"Bigger macro factors are roiling the broader equity market. But a response to earnings that leaves CVX shares 15% lower since announcing the Hess (NYSE:HES) merger looks overdone," said the analysts.
"We get conflicting sentiment around a deal that highlights portfolio questions after a decade of under-investment. Additionally, legacy operating challenges that led CVX to pull back from multiple large-scale projects are being brought back to the surface by difficulties at Tengiz," they added.
The analysts also stated that assuming the potential deal closes on the agreed terms, any rational assessment of what drives recognition of value concludes that the CVX investment case has been "reset by favorable rate of change on growth, dividend capacity & portfolio depth." BofA believes the stock's weakness provides a tactical opportunity.