Today, we delve into the valuation of Hess Corp (HES, Financial), an independent oil and gas producer. With a daily loss of -4.17% and a 3-month gain of 4.58%, the company has reported an Earnings Per Share (EPS) of 4.97. But is the stock fairly valued? This analysis aims to answer that question by exploring the company's financial health and growth prospects. Let's dive in.
Company Introduction
Hess Corp (HES, Financial) is a prominent player in the oil and gas sector, with key assets in the Bakken Shale, Guyana, the Gulf of Mexico, and Southeast Asia. By the end of 2022, Hess reported net proved reserves of 1.3 billion barrels of oil equivalent, with a daily net production averaging 344 thousand barrels of oil equivalent. The company's stock price currently stands at $143.26, while its GF Value, an estimation of fair value, is $133.34. This comparison sets the stage for a deeper exploration of Hess's valuation.
Understanding the GF Value
The GF Value is a proprietary metric that reflects the intrinsic value of a stock. It's calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line, visible on our summary page, represents the fair trading value of the stock.
According to our valuation method, Hess (HES, Financial) is fairly valued. The GF Value Line suggests that the stock's long-term return will likely align with the rate of its business growth. If the share price deviates significantly from the GF Value Line, it may indicate overvaluation or undervaluation, affecting future returns.
Financial Strength
Assessing a company's financial strength is crucial to avoid risks of permanent capital loss. Key indicators of financial strength include the cash-to-debt ratio and interest coverage. Hess has a cash-to-debt ratio of 0.24, ranking lower than 65.5% of 1026 companies in the Oil & Gas industry. Overall, Hess's financial strength is fair, rated 5 out of 10.
Profitability and Growth
Investing in profitable companies usually carries less risk. Hess has been profitable for 4 years over the past decade. With revenues of $10.80 billion and Earnings Per Share (EPS) of $4.97 in the past 12 months, Hess's operating margin of 29.13% is better than 74.16% of companies in the Oil & Gas industry. Overall, Hess's profitability is fair.
Company growth is a crucial factor in valuation. Hess's 3-year average annual revenue growth rate is 19.3%, ranking better than 68.95% of companies in the Oil & Gas industry. The 3-year average EBITDA growth rate is 27.1%, outperforming 64.77% of industry counterparts.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) can provide insights into its profitability. If the ROIC exceeds the WACC, the company is likely creating value for shareholders. Hess's ROIC for the past 12 months is 11.4, surpassing its WACC of 9.21.
Conclusion
In conclusion, Hess (HES, Financial) appears to be fairly valued. The company's financial condition and profitability are fair, and its growth outperforms 64.77% of companies in the Oil & Gas industry. To learn more about Hess stock, check out its 30-Year Financials here.
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