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Hess Corp (NYSE:HES) has not been a star performer in my portfolio since I bought my initial position at around $65 a share early in the year. I have added to my position at lower levels, and have also picked up some premium income by selling slightly out-of-the-money puts that expired without hitting the strike price. I am basically even on my overall position in this stock. However, that is about to change as the company just came through with a stellar earnings report this morning that should drive the stock to significant gains in the months ahead.

Here are the key highlights from earnings report:

  • HES crushed earnings estimates, reporting EPS of $1.64, an impressive 45 cents above estimates.
  • The company also beat on the revenue side. Hess came in at $9.62 billion in sales, up 10% year over year and above the consensus estimate of $9.25 billion.
  • Production in the quarter was 402,000 barrels of oil equivalent daily (BOE/D) in the quarter, better than the 386,200 BOE/D expected by analysts.
  • Net production from the Bakken averaged 62,000 BOE/D in the third quarter of 2012, compared to 32,000 BOE/D in the same period last year.
  • Production in Libya was 23,000 BOE/D during the quarter up from nothing last year at this time due to the unrest in the country at the time.

Hess is an integrated energy company that operates in two segments: exploration and production and marketing and refining.

Here are four additional reasons HES is still a good value play at $54 a share:

  1. Insiders have been net purchasers of the shares since March, and the stock is selling at just a little over four times operating cash flow.
  2. This is the second quarter in a row that the company has substantially beat analysts' expectations. Consensus earnings estimates for FY 2012 and FY 2013 had already moved up nicely over the past three months, and I would look for them to rise further on the back of this impressive quarter.
  3. The stock is selling near the bottom of its five-year valuation range based on P/E, P/S, P/CF, and P/B.
  4. HES is cheap at just 90% of book value and just over eight times forward earnings, significantly below its five-year average (17.1).
Source: Hess Is On A Roll After Crushing Estimates