Investors often grapple with the challenge of determining whether a stock is trading at a fair value. Hess Corp (HES, Financial), with its recent daily loss of 4.15% and a 3-month decline of 9.53%, presents such a conundrum. With an Earnings Per Share (EPS) of 4.94, the question arises: is Hess fairly valued? The following analysis aims to shed light on this question, providing investors with a clearer understanding of Hess's intrinsic value.
Company Introduction
Hess Corp (HES, Financial) is an independent oil and gas producer with significant assets across the Bakken Shale, Guyana, the Gulf of Mexico, and Southeast Asia. As of the end of 2022, Hess reported an impressive 1.3 billion barrels of oil equivalent in net proved reserves. With a daily net production averaging 344 thousand barrels of oil equivalent and a market cap of $42.70 billion, Hess stands out in the energy sector. Its stock price of $139.56, when juxtaposed with the GF Value of $135.82, prompts an in-depth valuation analysis.
Summarize GF Value
The GF Value is a unique valuation metric that offers an estimation of a stock's intrinsic value by considering historical trading multiples, a GuruFocus adjustment factor, and future business performance projections. This valuation tool suggests that Hess's stock price should hover around this calculated fair value. If Hess's stock price is significantly above the GF Value Line, it could be overvalued, leading to potentially lower future returns. Conversely, if it's below the line, investors might expect higher returns.
As per the GF Value, Hess (HES, Financial) appears to be fairly valued, indicating that its current price is in line with the intrinsic value calculated by GuruFocus. This alignment suggests that the long-term return on Hess's stock could closely mirror the company's business growth rate.
Link: These companies may deliver higher future returns at reduced risk.
Financial Strength
Investors must consider a company's financial strength to gauge the risk of permanent capital loss. Hess's cash-to-debt ratio of 0.22, although lower than 67.12% of its peers in the Oil & Gas industry, still reflects a fair financial condition, with a financial strength rating of 5 out of 10.
Profitability and Growth
Profitable companies, especially those with a history of consistent profitability, present less risk for investors. Hess's profitability, with a solid operating margin of 28.73%, ranks well within its industry. Furthermore, the company's growth prospects are promising, with an average annual revenue growth of 19.3% and a 3-year average EBITDA growth of 27.1%, outpacing many competitors in the sector.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) provides insight into its value creation capability. Hess's ROIC of 10.88 exceeds its WACC of 8.63, suggesting the company is effectively generating value for its shareholders.
Conclusion
In conclusion, Hess Corp (HES, Financial) exhibits signs of being fairly valued. With a fair financial condition and profitability, coupled with better-than-average growth rates, Hess is positioned favorably within the Oil & Gas industry. To delve deeper into Hess's financials, investors can explore its 30-Year Financials here.
To discover high-quality companies that may deliver above-average returns, please visit the GuruFocus High Quality Low Capex Screener.
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
