XOM - Hess Corp stock: A buy amid merger drama?
2024-05-28 08:03:16 ET
Hess Corporation (NYSE:HES) has been at the center of a significant corporate event since October 23, 2023, when Chevron Corporation (NYSE:CVX) announced its plans to acquire Hess for $53 billion, valuing the former at $171 per share. This all-stock transaction aims to combine the strengths of both companies, particularly enhancing Chevron’s portfolio with Hess’s valuable assets, including a significant stake in Guyana’s Stabroek Block—a prolific oil field.
Merger controversy and shareholder sentiment
Despite the initial excitement surrounding the merger, Hess’s stock has has held steady, hovering around $150 as of May 28, 2024. This stability masks underlying uncertainties and investor concerns that have influenced the stock’s performance.
The proposed merger has not been without drama, as Exxon Mobil (NYSE:XOM) has challenged the deal, claiming it holds a right of first refusal over Hess’s stake in the Stabroek Block. This legal dispute has added a layer of complexity to the merger proceedings, contributing to shareholder apprehension.
Hess shareholders are set to vote on the proposed merger today, a decision that has garnered mixed recommendations from influential proxy advisory firms. Glass Lewis has endorsed the merger, citing its strategic and financial merits and the potential upside for Hess shareholders in the combined entity.
On the other hand, Institutional Shareholder Services (ISS) has advised shareholders to abstain from voting until more clarity emerges regarding the arbitration with Exxon and the full implications of the merger. Adding to the uncertainty, several large shareholders, including hedge funds like DE Shaw and Pentwater Capital, have indicated they plan to abstain from the vote.
These abstentions reflect broader concerns about the valuation of Hess’s assets, particularly the Guyana oil interests, and whether shareholders are receiving adequate compensation in the all-stock deal. Despite these concerns, Hess’s business fundamentals remain strong.
Financial strength and future prospects
The company holds significant assets, including its 30% stake in the Stabroek Block, which is expected to deliver substantial production growth in the coming years. Additionally, Hess’s Bakken shale assets contribute to its robust portfolio, offering considerable long-term value. Financially, Hess has shown solid performance, with recent earnings and cash flow metrics reflecting its operational strengths.
The proposed merger, unanimously approved by the boards of both companies, is structured entirely in Chevron stock, with Hess shareholders receiving 1.025 shares of Chevron for each Hess share. This structure is designed to provide Hess shareholders with continued exposure to the combined entity’s potential upside.
However, the arbitration case with Exxon and ongoing antitrust reviews are significant hurdles that could delay or even derail the transaction. Given the potential benefits and risks associated with the merger, the upcoming shareholder vote is critical. A successful vote could pave the way for a stronger, more diversified energy company, while a failed vote could leave Hess to navigate the volatile oil market independently, albeit with a solid asset base.
Now, let’s see what the charts have to say. In this technical analysis, we will explore the stock’s recent price movements, support and resistance levels, and potential future trends to provide a comprehensive view of Hess Corp’s stock performance going forward amid the ongoing merger drama.
Play the long game or short the merger?
Hess’ stock has been on a long-term uptrend since November 2020. However, since reaching a high above $160 in January 2023, the stock has mostly traded within a $130-$160 range. It attempted to break above this range late last month but was unsuccessful.
Given that the stock’s long-term uptrend is still intact and it hasn’t dropped below its medium-term support near $130 since the merger announcement, the chart currently favors the bulls. Investors and traders looking to buy the stock can consider doing so at the current level near $150, with a stop loss set at $128.6. If the uptrend continues or the merger is successful, they can aim to book profits at $171.
Conversely, traders who are bearish on the stock or expect the merger to fall through can initiate a short trade at the current levels, but should maintain a strict stop loss at $166.3. If the stock declines from here, it will likely find support near $130. If it breaks this level, the next support is at $114.4, where profits can be booked.
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