With a daily gain of 3.56% and a three-month gain of 18.2%, Hess Corp (HES, Financial) has been catching the attention of value investors. The company's Earnings Per Share (EPS) stands at 4.97 as of September 27, 2023. But the question remains, is the stock modestly overvalued? This article offers a comprehensive valuation analysis of Hess (HES) to help you make an informed decision. Read on to find out more.
A Brief Overview of Hess Corp (HES, Financial)
Hess is an independent oil and gas producer with key assets in the Bakken Shale, Guyana, the Gulf of Mexico, and Southeast Asia. By the end of 2022, the company reported net proved reserves of 1.3 billion barrels of oil equivalent. Its net production averaged 344 thousand barrels of oil equivalent per day in 2022, with a ratio of 72% oil and natural gas liquids and 28% natural gas. Despite its current price of $157.46 per share and a market cap of $48.30 billion, the GF Value estimates its fair value at $133.91, suggesting that the stock is modestly overvalued.
Understanding the GF Value of Hess (HES, Financial)
The GF Value is a proprietary measure of a stock's intrinsic value, computed considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line denotes the stock's ideal fair trading value.
According to the GF Value, Hess (HES, Financial) appears to be modestly overvalued. This means that the long-term return of its stock is likely to be lower than its business growth. The GF Value Line is the fair value that the stock should be traded at. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher.
Assessing the Financial Strength of Hess (HES, Financial)
Before investing in a company, it's crucial to check its financial strength. Companies with poor financial strength pose a higher risk of permanent loss. The cash-to-debt ratio and interest coverage are good indicators of a company's financial strength. Hess has a cash-to-debt ratio of 0.24, which is worse than 65.57% of 1034 companies in the Oil & Gas industry. This indicates that the financial strength of Hess is fair.
Profitability and Growth of Hess (HES, Financial)
Companies that have been consistently profitable over the long term offer less risk for investors. Hess has been profitable 4 over the past 10 years. Over the past twelve months, the company had a revenue of $10.80 billion and Earnings Per Share (EPS) of $4.97. Its operating margin is 29.13%, which ranks better than 74.09% of 984 companies in the Oil & Gas industry. This indicates fair profitability.
Growth is a crucial factor in the valuation of a company. The 3-year average annual revenue growth of Hess is 19.3%, which ranks better than 69.03% of 862 companies in the Oil & Gas industry. The 3-year average EBITDA growth rate is 27.1%, which ranks better than 64.9% of 829 companies in the Oil & Gas industry.
Comparing ROIC and WACC of Hess (HES, Financial)
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Hess's ROIC was 11.4, while its WACC came in at 9.06.
Conclusion
In conclusion, the stock of Hess (HES, Financial) appears to be modestly overvalued. The company's financial condition is fair, and its profitability is fair. Its growth ranks better than 64.9% of 829 companies in the Oil & Gas industry. To learn more about Hess stock, you can check out its 30-Year Financials here.
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