Hess Corporation’s (NYSE:HES): Hess Corporation, an exploration and production company, explores for, develops, produces, purchases, transports, and sells crude oil, natural gas liquids (NGLs), and natural gas. On 31 December 2018, the US$17b market-cap posted a loss of -US$328.0m for its most recent financial year. Many investors are wondering the rate at which HES will turn a profit, with the big question being “when will the company breakeven?” Below I will provide a high-level summary of the industry analysts’ expectations for HES.
HES is bordering on breakeven, according to the 10 Oil and Gas analysts. They anticipate the company to incur a final loss in 2019, before generating positive profits of US$695m in 2020. HES is therefore projected to breakeven around a couple of months from now! How fast will HES have to grow each year in order to reach the breakeven point by 2020? Working backwards from analyst estimates, it turns out that they expect the company to grow 51% year-on-year, on average, which is extremely buoyant. Should the business grow at a slower rate, it will become profitable at a later date than expected.
I’m not going to go through company-specific developments for HES given that this is a high-level summary, but, take into account that typically an oil and gas business has lumpy cash flows which are contingent on the natural resource and stage at which the company is operating. This means, large upcoming growth rates are not abnormal as the company is beginning to reap the benefits of earlier investments.
One thing I would like to bring into light with HES is its relatively high level of debt. Generally, the rule of thumb is debt shouldn’t exceed 40% of your equity, which in HES’s case is 61%. A higher level of debt requires more stringent capital management which increases the risk in investing in the loss-making company.
This article is not intended to be a comprehensive analysis on HES, so if you are interested in understanding the company at a deeper level, take a look at HES’s company page on Simply Wall St. I’ve also compiled a list of essential aspects you should look at:
- Valuation: What is HES worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether HES is currently mispriced by the market.
- Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Hess’s board and the CEO’s back ground.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
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