Even After Recent Run, Hess Has Considerable Upside

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 |  About: Hess Corporation (HES)
by: Bret Jensen

Hess Corporation (NYSE:HES) is one of the best performing large caps in my portfolio so far in 2012. It is up some 18% YTD. Given its valuation and catalysts, I still find it trading at a significant discount to fair value and look for further upside in the stock this year.

7 Reasons Hess still has substantial upside at $65 a share:

  • The median analysts' price target on HES is $80 based on 14 analysts' estimates. In addition, both Deutsche Bank and Howard Weil have upgraded the stock in recent months.
  • The company is in the minority of stocks that has had net insider buying over the last six months during the rally.
  • Credit Suisse predicts that Hess's long duration producing projects will increase to 50% of assets by 2017 from just over 20% currently. They also predict HES will earn $11.21 a share by FY2014.
  • It is selling near the bottom of its five year valuation range based on P/B, P/CF and P/S. Earnings estimates for FY2012 and FY2013 have risen significantly over the past month.
  • The company is drilling some of the best wells in the Bakken. It has invested in gas/rail infrastructure wisely and has reduced the drilling days per well. As this production ramps up, it should boost the company's revenues and earnings and improved investor sentiment on the stock.
  • The stock is showing increasing technical strength, just crossed its 200 day moving average and appears poised to move towards its highs of last year (See Chart)

Click to enlarge
(Click to enlarge)

  • Crack spreads have improved for its refining segment and the company is still cheap at under 8 times forward earnings and a five year projected PEG of just .5.

Disclosure: I am long HES.