Hess Overdelivers

| About: Hess Corporation (HES)

I have been a passionate advocate for Hess (NYSE:HES) for quite some time. I have been adding shares for over a year and my cost basis is in the low $50s. This long-term stock market laggard has done a good job of divesting non-core businesses and assets to concentrate on growing production in its core producing properties, like those in the Bakken. It is well on its way to becoming a pure-play E&P company, which should be rewarded by a higher multiple by the market when complete.

In addition, Elliott Management has a significant stake (4%) and has been very vocal in agitating (I get three emails a week from these guys advising how to vote my shares) to continue increasing shareholder value out of the company's undervalued assets. HES just reported quarterly earnings, and they were impressive.

Here are the key highlights from Hess' earnings report:

  • EPS came in at $1.95 a share, an impressive 38 cents a share above consensus estimates. Earnings were also up 30% year over year.
  • Production from its wells in the Bakken rose 55% year over year to 65,000 barrels a day.
  • Average selling price for its oil production rose 5.1% in the quarter.
  • The company now has completed $3.4 billion from asset sales to date in 2013, and is using sales to reduce debt and add cash to its balance sheet.
  • Hess also announced that it anticipates additional asset sales will be completed this year to fund a $4 billion share repurchase program expected to commence in the second half of 2013.

Hess is as an independent energy company with producing oil and gas properties worldwide.

Here are four additional reasons HES still has upside from $69 a share:

  1. The stock is cheap at just 10% over book value and just over four times operating cash flow.
  2. The 17 analysts who cover the stock have an $80 a share median price target. Barclays just upgraded the stock to "Overweight" from "Equal Weight" earlier in the week.
  3. Based on huge production increases from the company's Bakken properties and an acceleration of the stock repurchase program, investors should look for earnings estimates for the next two fiscal years to be revised up. This should provide a nice tailwind for the stock.
  4. The company is doing the right things to increase shareholder value. I am confident that Elliott Management will continue to hold management's feet to the fire to ensure this continues. Given this, the stock, at 11.5x trailing earnings, is a solid buy.

Disclosure: I am long HES. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.