Hess Corporation Quarterly Valuation – November 2014 $HES

200px-Hess_Corporation_Logo.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Undervalued Companies for the Defensive Investor Near 52 Week Lows – November 2014.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Hess Corporation (HES) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Hess Corporation (Hess) is a global integrated energy company that operates in two segments: Exploration and Production (E&P) and Marketing and Refining (M&R). The E&P segment explores for, develops, produces, purchases, transports and sells crude oil and natural gas. These exploration and production activities take place principally in Algeria, Australia, Azerbaijan, Brazil, Brunei, China, Denmark, Egypt, Equatorial Guinea, France, Ghana, Indonesia, the Kurdistan region of Iraq, Libya, Malaysia, Norway, Peru, Russia, Thailand, the United Kingdom and the United States. The M&R segment manufactures refined petroleum products and purchases, markets and trades refined petroleum products, natural gas and electricity. In January 2014, the Company sold its Pangkah asset to a subsidiary of PT Saka Energi Indonesia. In June 2014, two Energy Investors Funds (EIF)-managed funds have indirectly acquired an additional 50% ownership stake in the Newark Energy Center from Hess.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 6/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 - FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years - PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years - PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - PASS
  6. Moderate PEmg ratio – PEmg is less than 20 - PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 - PASS

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 - PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 - FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend - PASS
  5. Earnings growth – EPSmg greater than 5 years ago - PASS

Valuation Summary

Key Data:

Recent Price $82.25
MG Value $168.34
MG Opinion Undervalued
Value Based on 3% Growth $112.39
Value Based on 0% Growth $65.89
Market Implied Growth Rate 1.06%
Net Current Asset Value (NCAV) -$25.77
PEmg 10.61
Current Ratio 1.77
PB Ratio 1.03

Balance Sheet – September 2014

Current Assets $8,865,000,000
Current Liabilities $5,015,000,000
Total Debt $5,929,000,000
Total Assets $40,975,000,000
Intangible Assets $1,858,000,000
Total Liabilities $16,726,000,000
Outstanding Shares 305,000,000

Earnings Per Share

2014 (estimate) $4.53
2013 $14.82
2012 $5.95
2011 $5.01
2010 $6.47
2009 $2.27
2008 $7.24
2007 $5.74
2006 $6.08
2005 $3.93
2004 $3.19

Earnings Per Share – ModernGraham

2014 (estimate) $7.75
2013 $8.54
2012 $5.40
2011 $5.20
2010 $5.38
2009 $4.91

Dividend History


Hess Corporation qualifies for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is only concerned by the low current ratio while the Enterprising Investor is only slightly concerned by the level of debt relative to the net current assets.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities.  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $5.38 in 2010 to an estimated $7.75 for 2014.  This level of demonstrated growth is greater than the market’s implied estimate of 1.06% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.

Be sure to check out previous ModernGraham valuations of Hess Corporation plc (HES) for greater perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Hess Corporation plc (HES)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Hess Corporation plc (HES) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.






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