Hess Pumped For 2011 Gains

1/17/2011


  Recent Price
$81
  Dividend
$0.40
  Yield
0.5%
  P/E Ratio
16
  Shares (millions)
328
  Long-Term Debt as % of Capital
26%
  52-Week Price Range
$81.61 - $48.70

Formed in 1933, Hess ($81; HES) started with a teenager, a truck, and a plan for delivering oil to homes in New Jersey. Fifteen years later Hess took to oil tankers, then later came refineries and a chain of gas stations. Today, Hess, the fifth-largest integrated oil and gas company in the U.S. by sales, owns more than 10 years’ worth of proved reserves at drilling sites in four continents.

The stock marches to the beat of oil prices, in part because of Hess’s relatively high cost structure. Over the long haul, the success of its exploration efforts will be crucial. Revenue rose 19% through the first nine months of 2010, partially rebounding from 38% contraction during that same period in 2009. Gross profit margins have steadily climbed over the last year, in the September quarter reaching the highest level since 2002. Hess, exhibiting broad strength in Quadrix, is a Buy and a Long-Term Buy.

Business breakdown

Exploration and production generated 27% of total revenue in the nine months ended September — and essentially all of net income. Production is spread fairly evenly across four continents: Africa (28% of total production for the nine-month period), Europe (26%), North America (25%), and Asia (21%). Hess is one of 13 companies allowed to resume drilling in the Gulf of Mexico as long as it complies with new rules devised following the BP ($67; BP) disaster. The majority of Hess’s undeveloped reserves lie in Europe and Asia.

Hess set its 2010 production target at 405,000 to 415,000 barrels of oil equivalent per day, versus 408,000 in 2009 and 381,000 in 2008. Hess looks to grow production at an annualized rate of at least 3%. A string of acquisitions in the past eight months should help sustain production growth, and several exploration projects are flowing through the pipeline.

The outlook is improving for the marketing and refining business (73% of revenue), consisting of a refining facility, terminals, and gasoline stations scattered along the U.S. East Cost. The unit’s revenue climbed 13% in the nine months ended September.

Energy prices rose across all of the company’s regions in the first nine months of 2010. Hess’s worldwide average selling prices rose 37% for crude oil, 21% for natural gas, and 44% for liquefied natural gas.

For 2011, Hess raised its capital and exploratory budget by 44% to $5.6 billion. Spending will focus on exploration and production projects, funded by cash provided by operations, which has risen 90% in the past year to $4.32 billion.

Conclusion

December-quarter results, scheduled for release Jan. 26, are expected to reveal 2% higher per-share profits on 13% lower revenue. Profit estimates have risen in the past month. For 2011, Wall Street projects earnings of $5.95 per share, implying 15% growth on 14% higher sales.

The shares seem attractively valued, trading at 13.6 times the 2011 estimate, 11% below the average energy stock in the S&P 1500 Index. An annual report for Hess Corp. can be obtained at 1185 Avenue of the Americas, New York, NY 10036; (212) 536-8940; www.hess.com.

 

HESS
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Sep '10
1.31
vs.
0.74
+ 8%
59.79
-
48.71
13 - 11
Jun '10
1.15
vs.
0.41
+ 15%
66.22
-
48.70
17 - 13
Mar '10
1.49
vs.
-0.09
+ 34%
66.49
-
55.89
29 - 24
Dec '09
1.23
vs.
-0.18
+ 18%
62.18
-
51.41
71 - 58
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2009
29.61
2.29
0.40
69.74
-
46.33
30 - 20
2008
41.17
7.29
0.40
137.00
-
35.50
19 - 5
2007
31.71
5.97
0.40
105.85
-
45.96
18 - 8
2006
28.07
5.71
0.40
56.45
-
37.62
10 - 7
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
99
97
83
86
67
98
81

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.


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