Hess Corporation HES is well poised to grow on the back of robust offshore Guyana oil reserves and solid midstream business. With rising commodity prices, its upstream unit will generate more profits.
Hess Corp. — with a market cap of $25.7 billion — is a global integrated energy company. The New York-based firm is primarily involved in the exploration and production of oil as well as natural gas around the globe. Also, it has profitable gathering, compressing, and processing operations of natural gas and fractionating natural gas liquids.
Courtesy of solid prospects, this Zacks Rank #3 (Hold) stock is worth holding on to at the moment.
Estimates
The Zacks Consensus Estimate for 2021 earnings per share stands at $2.16, signaling a massive improvement from last year’s loss of $2.93. The consensus estimate for 2021 revenues is pegged at $6.8 billion, indicating a rise from $4.8 billion in 2020.
The company beat earnings estimates thrice in the last four quarters and met once, with an average surprise of 31.5%.
Hess Corporation Price and EPS Surprise
Hess Corporation price-eps-surprise | Hess Corporation Quote
Major Positives
Hess recently announced the 20th significant discovery in the Stabroek Block, located off the coast of Guyana. With the latest oil discovery at the Pinktail well, the company has added to its previously estimated 9 billion barrels of oil equivalent recoverable resources in the block. The discoveries made so far at the site have the potential of adding at least six FPSO vessels by 2027. It has Exxon Mobil Corporation XOM as the operator. With Liza phase 2 likely to come online in early-2022, Hess’ cash flow situation is expected to see a major improvement. It anticipates multibillions of exploration potential to be still left in Guyana.
With WTI Crude price currently trading around the $76 per barrel mark, companies with exploration and production businesses are poised for massive year-over-year growth in the bottom line. Due to rising demand and inadequate supply, commodity prices are expected to remain high.
Hess expects 2021 exploration and production capital and exploration expenditure to be $1.9 billion, of which the majority will likely be directed toward Guyana and Bakken. The company is focusing on preserving cash and implementing a cost-reduction program, through which it will likely boost profitability as well as cash margins. From 2017 through 2021, it decreased cash unit production costs by 20%. This trend will provide a northbound thrust to the company’s bottom line.
Downsides
However, there are a few factors that are impeding the growth of the stock lately.
As of Jun 30, 2021, Hess had only $2,430 million in cash and cash equivalents, way below long-term debt of $7,712 million. Its debt to capitalization of 56.4% is way above the industry average of 45.3%. This can affect the company’s financial flexibility. Also, it expects 2021 net production (excluding Libya) to be 295,000 Boe/d, signaling a decline from the year-ago level of 331 Boe/d. This can reduce profits for the company. Nevertheless, we believe that a systematic and strategic plan of action will drive its long-term growth.
Key Picks
Some better-ranked players in the energy space include Extraction Oil & Gas, Inc. XOG and Cheniere Energy, Inc. LNG, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Extraction Oil & Gas’ bottom line for 2021 is pegged at $13.07 per share, indicating a massive improvement from last year’s loss of $2.54.
Cheniere Energy’s bottom line for third-quarter 2021 is expected to surge 239.1% year over year.
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Exxon Mobil Corporation (XOM): Free Stock Analysis Report
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