Hess Stock Barrels Along - Barron's

Barron's argues that Hess (HES) could be the best major energy stock for anyone betting on an eventual recovery of oil.

Like other energy companies, Hess is scaling back capital expenditures this year, to $3.2B. But it's still setting aside $800M for exploration, a prudent move considering Hess' discoveries in Australia, Libya, Egypt and elsewhere last year.

While Hess spends over 80% of its capex on exploration and production, it's also working on shoring up its finances. Its debt-to-capital ratio has come down to 26.3% in Q1 from 52% seven years ago, and the firm plans to cut $200M in costs this year. At the end of the quarter, Hess had net debt of $3.2B and $1.1B of cash.

If the global economy and crude prices stabilize, Hess could earn $2.55/share in 2010, based on relatively modest expectations for oil and gas.

The stock has advanced quickly and could sink back down again. In fact, Barron's Christopher C. Williams writes that anyone who doesn't own the stock but wants to "would be well-advised to wait for a pullback, which is likely to be temporary." But long-term, Hess is a solid bet to outperform the overall market.

Though industry giant Exxon Mobil (XOM) might offer more stability and smaller rival Murphy Oil (MUR) might be growing faster, Hess could see the biggest relative boost from an oil rebound. Bulls expect the stock to hit $70/share over the next 18 months vs. a recent $63.36, and gains could be even larger if investors wait for a temporary pullback to pick up the stock.

• Fadel Gheit, of Oppenheimer, thinks "Hess has one of the highest exploration potentials in the sector, and any of their major exploration plays could have significant impact on its valuation." He rates the stock as Outperform.
• Paul Sankey, of Deutsche Bank, has a Hold rating on the stock and a target of $46/share. He's concerned that Greg Hill, who has taken over Hess' worldwide exploration effort, won't be able to replicate his predecessor's successes.
• S&P analyst Tina Vital believes Hess offers better prospects than some of its rivals, and has raised her rating to Buy from Hold with a $67 target.

:::::::::::::::

• Hess: Q1 EPS of -$0.18 beats by $0.09. Revenue of $6.9B (-35.8%) vs. $5.6B. (PR)
• Value Expectations provides a list of "energy and extraction" companies in the S&P 500, ranked by valuation attractiveness. Hess comes in as Fairly Valued.
• Bullish Bankers takes a closer look at the neglected sub-sector of energy refiners.