Hess Corp. Fundamentally Sound

Jun.23.11 | About: Hess Corporation (HES)

Hess Corp. (NYSE:HES) is a global energy company focused on two segments: exploration and production, and marketing and refining. HES currently has exploration and production in 20 countries. The company currently has 63 service stations in 18 East Coast states and through one of its subsidies helps operate Hovensa, one of the largest petroleum refineries in the world. Fundamentally, the company is solid -- a quick look at Hess' fundamentals compared to other similar companies in the oil and gas integrated industry reveals that, while HES is not highly undervalued, it is still a solid play below $69/ per share.

Fundamental Analysis



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Net Profit Margin



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Total Debt to Equity



Return on Assets



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Return on Investments



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Starting with the value metrics, we quickly see that HES is trading only marginally higher than average. This reflects that HES may be overbought on the market or that market sentiment is changing. The next metric, price to sales, is also important. The lower the price to sales, the more undervalued the company is, granted, the average price to sales varies by industry. Currently, HES appears to be slightly more expensive than the average but before we jump the gun, we need to look at the profitability of the company. There is a reason that HES is slightly more expensive than the industry average.

HES is generating $00.88 more than its peers in terms of profit. That is why it is priced slightly higher than average. Now, there are several reasons why the profits could be higher, but the biggest reason could simply be due to the incredibly low dividend of only $00.40 a year. At the current price, that puts the yield at 0.56%, which is miniscule compared to similar companies such as Exxon (NYSE:XOM),which currently yields 2.33%.

Looking at the financial strength of both HES and its peers it is clear to see that HES is more stable. Taking a look at Exxon again, we see that their current and quick ratios are 0.98 and .76. While those are respectable for industry standards, between 0.5 and 1.5 are accepted now as the total debt to equity ratio. Investors want that to be low but at the same time not too low.

The debt to equity is basically saying, in the case of HES, for every one dollar invested, they will leverage $00.31 to finance other operations. Exxon currently is running a very low ratio of 0.10, which basically means they are only leveraging $00.10 for every dollar invested.

HES, from a value standpoint, appears to be very tight gripped when it comes to the company and that is not necessarily a bad thing.

Management has been working steadily to increase profits but it still has a long ways to go before it truly can compete with the margins of Exxon. It does however make BP (NYSE:BP) look like a junk stock when looking at the ratios. So, HES is neither impressive nor offensive when it comes to management.


HES while not a glamorous growth stock, does have potential, particularly in the coming months. As a quick review of the charts indicates a trend over the past several years showing HES typically bottoms between July and October of each year (the past 4 years). I would wait for a pull back to around $68.67 before taking a position because that will place HES at 1.5 times book value, making it a solid play.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.