Hess Corporation HES has gained 19.9% in the past year against the 2.7% decline of the composite stocks belonging to the industry.
The company, currently carrying a Zacks Rank #3 (Hold), beat the Zacks Consensus Estimate in the prior four quarters, the average surprise being 6.5%.
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Let’s delve into the factors behind the stock’s price appreciation.
What’s Favoring the Stock?
The West Texas Intermediate crude price has touched the $66-per-barrel mark, highlighting a handsome commodity pricing environment. Being one of the largest deepwater Gulf of Mexico producers, Hess is well-positioned to capitalize on the improving crude price.
Hess made multiple oil discoveries at the Stabroek Block offshore Guyana, where discoveries are lining up one after another. The company recently made an oil discovery at the Fangtooth SE-1 well, which will add to the block’s recoverable resource estimate of more than 11 billion barrels of oil equivalent. The discovery has the potential to support future oil development on the Stabroek Block.
For 2023, Hess expects net production (excluding Libya) of 355,000-365,000 barrels of oil equivalent per day (Boe/d), indicating an increase from 344,000 Boe/d reported in 2022. Coupled with higher oil prices, increased production will boost the company’s bottom line.
Hess recently announced a regular quarterly dividend of 43.75 cents per share, payable to holders of record at the close of business on Mar 13, 2023. The figure reflects a roughly 17% increase over the fourth-quarter 2022 dividend. This reflects the company’s strong commitment to returning capital to its shareholders.
Hess expects operating cash flow to expand, seeing a compound annual growth rate of 25% through 2027. This increases the probability of future dividend hikes, thereby illustrating Hess’ robust and stable business growth.
Numerous factors are aiding the stock price surge for HES and are creating more room for upside. Hess is expecting significant free cash flow growth in the coming years, which will get allocated toward reducing debt load and returning capital to shareholders.
One factor that can offset the positives to some extent is Hess’ aggressive capital spending budget, which remains a headwind for the company. For 2023, the company expects to incur capital and exploratory expenditure of $3.7 billion. This suggests a 32% hike from last year’s reported figure.
Investors interested in the energy sector might look at the following companies that presently flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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