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Hess (HES) Up 6.2% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Hess (HES - Free Report) . Shares have added about 6.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Hess due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Hess Q4 Earnings Beat Estimates

Hess Corporation reported adjusted fourth-quarter 2021 earnings per share of 85 cents, beating the Zacks Consensus Estimate of 76 cents. Nonetheless, the figure improved from the year-ago loss of 58 cents per share.

Quarterly revenues increased to $2,255 million from $1,417 million a year ago. The top line also beat the Zacks Consensus Estimate of $2,050 million.

The strong quarterly results were due to the higher commodity price realizations and increased contributions from the midstream business.

Operational Update

Exploration and Production

For the quarter under review, the Exploration and Production business reported adjusted earnings of $309 million against a loss of $118 million a year ago. The business was favored by higher realized commodity prices, partially offset by decreased output.

Quarterly hydrocarbon production was 316 thousand barrels of oil equivalent per day (MBoe/d), down from 321 MBoe/d in the year-ago period, owing to lower contributions from the Bakken Play. This was partially offset by higher production from the Gulf of Mexico.

Crude oil production decreased from 167 thousand barrels per day (MBbls/d) in fourth-quarter 2020 to 158 MBbls/d. Natural gas liquids production totaled 56 MBbls/d, down from 64 MBbls/d in the prior-year quarter. However, natural gas output was 611 thousand cubic feet per day (Mcf/d), up from 538 Mcf/d a year ago.

Worldwide crude oil realization per barrel of $75.22 (excluding the impacts of hedging) significantly improved from $39.45 in the year-ago period. Also, worldwide natural gas prices rose to $4.77 per Mcf from the year-ago figure of $3.35. The average worldwide natural gas liquids’ selling price increased to $36.47 per barrel from $15.80 a year ago.

Midstream

From the midstream business, the company generated adjusted net earnings of $74 million, up from $62 million a year ago on improvement in tariff rates and minimum volume commitments.

As announced earlier, it received $108 million in net proceeds, following Hess Midstream LP’s repurchase of a significant number of Hess Midstream Operations LP units in October.

Operating Expenses

Operating expenses for the fourth quarter totaled $316 million versus the year-ago level of $313 million. Marketing costs increased to $672 million from $281 million a year ago. Exploration expenses, however, decreased to $45 million from $60 million in the year-ago period.

Total costs and expenses increased to $1,687 million for the quarter from $1,372 million a year ago.

Financials

Net cash flow from operations was $899 million for the fourth quarter, reflecting a significant improvement from the year-ago figure of $486 million. Hess’ capital expenditure for exploration and production activities totaled $593 million, up from $371 million in the prior-year quarter.

As of Dec 31, 2021, the company had $2,713 million in cash and cash equivalents, up from $2,419 million in the previous quarter. Its long-term debt was recorded at $7,941 million at the fourth-quarter end, down sequentially from $7,993 million. The current maturity of the long-term debt is $517 million. Debt to capitalization at the quarter end was 55.3%.

Guidance

For 2022, Hess projects net production (excluding Libya) of 330,000-340,000 Boe/d. The figure indicates a 12-15% increase from the 2021 reported level.

Net Bakken production is expected to be 165,000-70,000 Boe/d, suggesting a 6-9% increase from 2021. In the Bakken Play, Hess plans to operate a three-rig program, which will enable it to generate significant free cash flows, reduce unit cash costs and optimize its infrastructure.

The company expects E&P capital and exploratory expenditure to be $2.6 billion, 80% of which will be allocated to Guyana and the Bakken Shale Play.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

The consensus estimate has shifted -15.25% due to these changes.

VGM Scores

At this time, Hess has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Hess has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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