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Hess (HES) Surges 9.6% YTD: More Room For Upside Left?

Being a leading shale producer in the United States and a prominent player in the deepwater Gulf of Mexico, Hess (HES) is well placed to capitalize on the increase in...

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This story originally appeared on Zacks

Shares of Hess Corporation HES have jumped 9.6% year to date (YTD) compared with 3.2% gain of the composite stocks belonging to the industry. The Zacks Consensus Estimates for Hess’ earnings per share for 2021 and 2022 signify year-over-year growth of 170.3% and 166.5%, respectively.

- Zacks

Zacks Investment ResearchImage Source: Zacks Investment Research

Let’s delve into the factors behind the stock’s price appreciation.

What’s Favoring the Stock?

The price of West Texas Intermediate crude has touched the $77-per-barrel mark again, showing an improvement of more than 51% over the past year. With coronavirus vaccines being rolled out on a massive scale and the announcements that booster doses and antiviral pills are effective against Omicron, the economy will possibly overcome the recent spike in coronavirus cases. This is making the fuel demand outlook bright.

The fresh decisions by OPEC+ to continue to pump more oil have further reassured that the effect Omicron could have on fuel demand will possibly be mild. OPEC+ has decided that in February, they will increase their output collectively by another 400,000 barrels a day. The decision of OPEC+ has induced fresh momentum to the crude price rally. 

Being a leading shale producer in the United States and a prominent player in the deepwater Gulf of Mexico, Hess is well placed to capitalize on the improvement in crude price.

Hess has a 30% interest in the prolific Stabroek Block, located offshore Guyana. To date, Hess has made 21 major discoveries in the block, spreading across 6.6 million acres. Reservoir quality in the offshore resources is exceptional and the development costs are markedly low, hinting bright production outlook. Banking on these assets, HES is expecting industry-leading financial returns and cash flow growth.

Hess is expecting significant free cash flow growth in the coming years, which will get allocated toward reducing debt load and returning capital back to shareholders.

Numerous factors are aiding the stock price surge for HES, which is currently carrying a Zacks Rank #3 (Hold), and are creating more room for upside. One factor that could offset the positives to some extent is the fact that HES has been persistently generating lower dividend yields than the market over the past few years.

Stocks to Consider

Better ranked players in the energy space include Murphy USA Inc. MUSA, Sunoco LP SUN and MPLX LP MPLX. While Murphy USA and Sunoco LP sport a Zacks Rank #1 (Strong Buy), MPLX carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Murphy USA is well positioned to gain from improving gasoline demand in the coming months, since it is a prominent retailer of gasoline and convenience merchandise. Having a network of retail gasoline and convenience stores in 27 states, Murphy USA is being able to serve an estimated two million customers every day.

Over the past 30 days, Murphy USA has witnessed upward earnings estimate revisions for 2021 and 2022, respectively.

Sunoco LP generates stable cashflows since it is a leading independent fuel distributor in the United States. With a growing energy infrastructure platform, Sunoco LP secures roughly 2,500 commercial customers.

Over the past 60 days, Sunoco LP has witnessed upward earnings estimate revisions for 2021 and 2022, respectively. Overall, with demand for traditional motor fuels to continue to remain in place, Sunoco LP is well placed to continue to generate stable cashflows.

MPLX LP generates stable cashflows and has lower exposure to commodity price volatility, since it is the operator of midstream energy infrastructure and logistics assets. MPLX LP also generates cashflows from its fuel distribution business.

Over the past 60 days, MPLX LP has witnessed upward earnings estimate revisions for 2021 and 2022, respectively.



Infrastructure Stock Boom to Sweep America

A massive push to rebuild the crumbling U.S. infrastructure will soon be underway. It’s bipartisan, urgent, and inevitable. Trillions will be spent. Fortunes will be made.

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Hess Corporation (HES): Free Stock Analysis Report

 

Sunoco LP (SUN): Free Stock Analysis Report

 

Murphy USA Inc. (MUSA): Free Stock Analysis Report

 

MPLX LP (MPLX): Free Stock Analysis Report

 

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Zacks Investment Research