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Here's Why Hold Strategy is Apt for Hess (HES) Stock Right Now

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%.

 

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

 

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.

Risks

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.

Key Picks

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.

Sunoco LP’s SUN fourth-quarter 2022 earnings of 42 cents per unit missed the Zacks Consensus Estimate of 77 cents. Weak quarterly earnings resulted from the higher total cost of sales and operating expenses.

Sunoco has witnessed upward estimate revisions for 2023 earnings in the past 30 days. For 2023, Sunoco expects adjusted EBITDA of $850-$900 million.

RPC Inc.’s RES adjusted earnings of 41 cents per share in the fourth quarter beat the Zacks Consensus Estimate of 30 cents. The strong quarterly results were backed by higher activity levels in all the service lines and rising equipment utilization.

As of Dec 31, RPC had cash and cash equivalents of $126.4 million, up sequentially from $73.2 million. Nonetheless, the company managed to maintain a debt-free balance sheet.

Valero Energy Corporation’s VLO fourth-quarter 2022 adjusted earnings of $8.45 per share beat the Zacks Consensus Estimate of $7.45 per share. The strong quarterly results were driven by increased refinery throughput volumes and a higher refining margin.

Valero can benefit from the Gulf Coast export volumes as fuel demand recovery gets support from Asia economies. The Gulf Coast contributed 59.4% to the total throughput volume in the fourth quarter of 2022.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Hess Corporation (HES) : Free Stock Analysis Report

Valero Energy Corporation (VLO) : Free Stock Analysis Report

Sunoco LP (SUN) : Free Stock Analysis Report

RPC, Inc. (RES) : Free Stock Analysis Report

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Zacks Investment Research