Intrinsic value of Hess Corp. - HES

Previous Close

$44.55

  Intrinsic Value

$11.14

stock screener

  Rating & Target

str. sell

-75%

Previous close

$44.55

 
Intrinsic value

$11.14

 
Up/down potential

-75%

 
Rating

str. sell

We calculate the intrinsic value of HES stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 14.2

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -25.94
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  4,821
  4,917
  5,031
  5,160
  5,305
  5,466
  5,642
  5,834
  6,042
  6,266
  6,507
  6,764
  7,039
  7,331
  7,642
  7,971
  8,321
  8,691
  9,082
  9,495
  9,931
  10,391
  10,877
  11,388
  11,928
  12,495
  13,093
  13,723
  14,385
  15,081
  15,814
Variable operating expenses, $m
 
  6,166
  6,307
  6,468
  6,649
  6,849
  7,069
  7,308
  7,568
  7,847
  8,147
  8,430
  8,772
  9,136
  9,523
  9,934
  10,369
  10,830
  11,318
  11,833
  12,376
  12,950
  13,555
  14,193
  14,864
  15,572
  16,317
  17,101
  17,927
  18,795
  19,708
Fixed operating expenses, $m
 
  2,431
  2,492
  2,554
  2,618
  2,684
  2,751
  2,820
  2,890
  2,962
  3,036
  3,112
  3,190
  3,270
  3,352
  3,435
  3,521
  3,609
  3,700
  3,792
  3,887
  3,984
  4,084
  4,186
  4,290
  4,398
  4,507
  4,620
  4,736
  4,854
  4,975
Total operating expenses, $m
  8,360
  8,597
  8,799
  9,022
  9,267
  9,533
  9,820
  10,128
  10,458
  10,809
  11,183
  11,542
  11,962
  12,406
  12,875
  13,369
  13,890
  14,439
  15,018
  15,625
  16,263
  16,934
  17,639
  18,379
  19,154
  19,970
  20,824
  21,721
  22,663
  23,649
  24,683
Operating income, $m
  -3,539
  -3,680
  -3,768
  -3,862
  -3,962
  -4,067
  -4,178
  -4,294
  -4,415
  -4,543
  -4,676
  -4,778
  -4,923
  -5,075
  -5,233
  -5,398
  -5,570
  -5,749
  -5,936
  -6,130
  -6,332
  -6,543
  -6,762
  -6,990
  -7,227
  -7,474
  -7,731
  -7,999
  -8,278
  -8,567
  -8,869
EBITDA, $m
  -295
  -376
  -390
  -398
  -401
  -400
  -393
  -381
  -365
  -344
  -317
  -286
  -249
  -206
  -158
  -104
  -44
  22
  95
  176
  263
  358
  462
  573
  694
  824
  964
  1,114
  1,275
  1,448
  1,633
Interest expense (income), $m
  338
  335
  350
  366
  385
  406
  429
  455
  483
  513
  546
  581
  618
  658
  700
  745
  793
  844
  897
  954
  1,014
  1,078
  1,144
  1,215
  1,289
  1,367
  1,450
  1,537
  1,628
  1,724
  1,825
Earnings before tax, $m
  -3,854
  -4,014
  -4,118
  -4,229
  -4,347
  -4,473
  -4,607
  -4,749
  -4,898
  -5,056
  -5,222
  -5,358
  -5,541
  -5,733
  -5,933
  -6,143
  -6,363
  -6,593
  -6,833
  -7,084
  -7,346
  -7,620
  -7,906
  -8,205
  -8,516
  -8,842
  -9,181
  -9,536
  -9,905
  -10,292
  -10,694
Tax expense, $m
  2,222
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  -6,132
  -4,014
  -4,118
  -4,229
  -4,347
  -4,473
  -4,607
  -4,749
  -4,898
  -5,056
  -5,222
  -5,358
  -5,541
  -5,733
  -5,933
  -6,143
  -6,363
  -6,593
  -6,833
  -7,084
  -7,346
  -7,620
  -7,906
  -8,205
  -8,516
  -8,842
  -9,181
  -9,536
  -9,905
  -10,292
  -10,694

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  2,732
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  28,621
  26,438
  27,046
  27,741
  28,521
  29,386
  30,335
  31,368
  32,486
  33,691
  34,984
  36,367
  37,843
  39,415
  41,085
  42,857
  44,735
  46,723
  48,826
  51,047
  53,392
  55,867
  58,477
  61,228
  64,127
  67,180
  70,394
  73,778
  77,338
  81,083
  85,023
Adjusted assets (=assets-cash), $m
  25,889
  26,438
  27,046
  27,741
  28,521
  29,386
  30,335
  31,368
  32,486
  33,691
  34,984
  36,367
  37,843
  39,415
  41,085
  42,857
  44,735
  46,723
  48,826
  51,047
  53,392
  55,867
  58,477
  61,228
  64,127
  67,180
  70,394
  73,778
  77,338
  81,083
  85,023
Revenue / Adjusted assets
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
Average production assets, $m
  24,974
  25,472
  26,058
  26,728
  27,480
  28,313
  29,227
  30,222
  31,300
  32,460
  33,706
  35,039
  36,461
  37,975
  39,584
  41,292
  43,101
  45,017
  47,042
  49,183
  51,443
  53,827
  56,342
  58,992
  61,785
  64,727
  67,823
  71,083
  74,513
  78,122
  81,918
Working capital, $m
  2,025
  -605
  -619
  -635
  -653
  -672
  -694
  -718
  -743
  -771
  -800
  -832
  -866
  -902
  -940
  -980
  -1,023
  -1,069
  -1,117
  -1,168
  -1,222
  -1,278
  -1,338
  -1,401
  -1,467
  -1,537
  -1,610
  -1,688
  -1,769
  -1,855
  -1,945
Total debt, $m
  6,806
  6,995
  7,324
  7,699
  8,120
  8,587
  9,100
  9,658
  10,261
  10,912
  11,610
  12,357
  13,154
  14,003
  14,905
  15,862
  16,876
  17,950
  19,085
  20,284
  21,551
  22,887
  24,297
  25,782
  27,348
  28,996
  30,732
  32,559
  34,481
  36,504
  38,631
Total liabilities, $m
  14,087
  14,276
  14,605
  14,980
  15,401
  15,868
  16,381
  16,939
  17,542
  18,193
  18,891
  19,638
  20,435
  21,284
  22,186
  23,143
  24,157
  25,231
  26,366
  27,565
  28,832
  30,168
  31,578
  33,063
  34,629
  36,277
  38,013
  39,840
  41,762
  43,785
  45,912
Total equity, $m
  14,534
  12,161
  12,441
  12,761
  13,120
  13,518
  13,954
  14,429
  14,944
  15,498
  16,093
  16,729
  17,408
  18,131
  18,899
  19,714
  20,578
  21,493
  22,460
  23,482
  24,561
  25,699
  26,900
  28,165
  29,498
  30,903
  32,381
  33,938
  35,575
  37,298
  39,110
Total liabilities and equity, $m
  28,621
  26,437
  27,046
  27,741
  28,521
  29,386
  30,335
  31,368
  32,486
  33,691
  34,984
  36,367
  37,843
  39,415
  41,085
  42,857
  44,735
  46,724
  48,826
  51,047
  53,393
  55,867
  58,478
  61,228
  64,127
  67,180
  70,394
  73,778
  77,337
  81,083
  85,022
Debt-to-equity ratio
  0.468
  0.580
  0.590
  0.600
  0.620
  0.640
  0.650
  0.670
  0.690
  0.700
  0.720
  0.740
  0.760
  0.770
  0.790
  0.800
  0.820
  0.840
  0.850
  0.860
  0.880
  0.890
  0.900
  0.920
  0.930
  0.940
  0.950
  0.960
  0.970
  0.980
  0.990
Adjusted equity ratio
  0.456
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460
  0.460

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -6,132
  -4,014
  -4,118
  -4,229
  -4,347
  -4,473
  -4,607
  -4,749
  -4,898
  -5,056
  -5,222
  -5,358
  -5,541
  -5,733
  -5,933
  -6,143
  -6,363
  -6,593
  -6,833
  -7,084
  -7,346
  -7,620
  -7,906
  -8,205
  -8,516
  -8,842
  -9,181
  -9,536
  -9,905
  -10,292
  -10,694
Depreciation, amort., depletion, $m
  3,244
  3,303
  3,378
  3,464
  3,561
  3,667
  3,785
  3,912
  4,050
  4,199
  4,359
  4,492
  4,674
  4,869
  5,075
  5,294
  5,526
  5,771
  6,031
  6,305
  6,595
  6,901
  7,223
  7,563
  7,921
  8,298
  8,695
  9,113
  9,553
  10,016
  10,502
Funds from operations, $m
  748
  -711
  -740
  -764
  -786
  -806
  -822
  -836
  -848
  -857
  -863
  -866
  -867
  -864
  -858
  -850
  -837
  -821
  -802
  -779
  -751
  -719
  -683
  -641
  -595
  -543
  -486
  -422
  -352
  -276
  -192
Change in working capital, $m
  -47
  -12
  -14
  -16
  -18
  -20
  -22
  -24
  -26
  -28
  -30
  -32
  -34
  -36
  -38
  -41
  -43
  -45
  -48
  -51
  -54
  -57
  -60
  -63
  -66
  -70
  -74
  -77
  -81
  -86
  -90
Cash from operations, $m
  795
  -699
  -726
  -748
  -769
  -786
  -801
  -813
  -822
  -829
  -833
  -834
  -833
  -828
  -820
  -809
  -794
  -776
  -754
  -728
  -697
  -663
  -623
  -579
  -529
  -473
  -412
  -345
  -271
  -190
  -102
Maintenance CAPEX, $m
  0
  -3,202
  -3,266
  -3,341
  -3,427
  -3,523
  -3,630
  -3,747
  -3,875
  -4,013
  -4,162
  -4,321
  -4,492
  -4,674
  -4,869
  -5,075
  -5,294
  -5,526
  -5,771
  -6,031
  -6,305
  -6,595
  -6,901
  -7,223
  -7,563
  -7,921
  -8,298
  -8,695
  -9,113
  -9,553
  -10,016
New CAPEX, $m
  -2,251
  -499
  -586
  -670
  -752
  -833
  -914
  -995
  -1,077
  -1,161
  -1,246
  -1,333
  -1,422
  -1,514
  -1,609
  -1,708
  -1,810
  -1,915
  -2,026
  -2,140
  -2,260
  -2,385
  -2,515
  -2,651
  -2,793
  -2,941
  -3,097
  -3,260
  -3,430
  -3,609
  -3,796
Cash from investing activities, $m
  -2,090
  -3,701
  -3,852
  -4,011
  -4,179
  -4,356
  -4,544
  -4,742
  -4,952
  -5,174
  -5,408
  -5,654
  -5,914
  -6,188
  -6,478
  -6,783
  -7,104
  -7,441
  -7,797
  -8,171
  -8,565
  -8,980
  -9,416
  -9,874
  -10,356
  -10,862
  -11,395
  -11,955
  -12,543
  -13,162
  -13,812
Free cash flow, $m
  -1,295
  -4,400
  -4,577
  -4,759
  -4,947
  -5,142
  -5,345
  -5,555
  -5,774
  -6,003
  -6,241
  -6,489
  -6,747
  -7,017
  -7,298
  -7,591
  -7,898
  -8,217
  -8,551
  -8,899
  -9,263
  -9,642
  -10,039
  -10,452
  -10,885
  -11,336
  -11,808
  -12,300
  -12,814
  -13,352
  -13,913
Issuance/(repayment) of debt, $m
  84
  301
  328
  375
  421
  467
  512
  558
  604
  651
  698
  747
  797
  849
  902
  957
  1,014
  1,074
  1,135
  1,200
  1,267
  1,336
  1,409
  1,486
  1,565
  1,649
  1,736
  1,827
  1,922
  2,023
  2,127
Issuance/(repurchase) of shares, $m
  1,644
  4,262
  4,398
  4,548
  4,706
  4,871
  5,043
  5,224
  5,413
  5,610
  5,816
  5,995
  6,220
  6,456
  6,702
  6,959
  7,227
  7,507
  7,800
  8,106
  8,425
  8,759
  9,107
  9,470
  9,850
  10,246
  10,660
  11,092
  11,543
  12,014
  12,507
Cash from financing (excl. dividends), $m  
  1,661
  4,563
  4,726
  4,923
  5,127
  5,338
  5,555
  5,782
  6,017
  6,261
  6,514
  6,742
  7,017
  7,305
  7,604
  7,916
  8,241
  8,581
  8,935
  9,306
  9,692
  10,095
  10,516
  10,956
  11,415
  11,895
  12,396
  12,919
  13,465
  14,037
  14,634
Total cash flow (excl. dividends), $m
  366
  163
  149
  165
  180
  196
  211
  226
  242
  258
  274
  253
  270
  287
  306
  324
  344
  364
  385
  406
  429
  453
  477
  503
  530
  558
  588
  619
  651
  685
  721
Retained Cash Flow (-), $m
  4,852
  -4,262
  -4,398
  -4,548
  -4,706
  -4,871
  -5,043
  -5,224
  -5,413
  -5,610
  -5,816
  -5,995
  -6,220
  -6,456
  -6,702
  -6,959
  -7,227
  -7,507
  -7,800
  -8,106
  -8,425
  -8,759
  -9,107
  -9,470
  -9,850
  -10,246
  -10,660
  -11,092
  -11,543
  -12,014
  -12,507
Prev. year cash balance distribution, $m
 
  2,620
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  -1,478
  -4,249
  -4,384
  -4,526
  -4,675
  -4,832
  -4,997
  -5,171
  -5,352
  -5,542
  -5,742
  -5,950
  -6,168
  -6,396
  -6,634
  -6,883
  -7,144
  -7,416
  -7,700
  -7,996
  -8,306
  -8,629
  -8,967
  -9,319
  -9,687
  -10,072
  -10,473
  -10,892
  -11,329
  -11,786
Discount rate, %
 
  5.80
  6.09
  6.39
  6.71
  7.05
  7.40
  7.77
  8.16
  8.57
  9.00
  9.45
  9.92
  10.42
  10.94
  11.48
  12.06
  12.66
  13.29
  13.96
  14.66
  15.39
  16.16
  16.97
  17.81
  18.71
  19.64
  20.62
  21.65
  22.74
  23.87
PV of cash for distribution, $m
 
  -1,397
  -3,775
  -3,640
  -3,490
  -3,326
  -3,148
  -2,959
  -2,760
  -2,554
  -2,342
  -2,127
  -1,912
  -1,701
  -1,496
  -1,299
  -1,114
  -941
  -784
  -643
  -519
  -411
  -320
  -244
  -182
  -133
  -95
  -66
  -45
  -30
  -19
Current shareholders' claim on cash, %
  100
  73.1
  53.3
  38.8
  28.1
  20.4
  14.7
  10.6
  7.7
  5.5
  4.0
  2.9
  2.1
  1.5
  1.1
  0.8
  0.6
  0.4
  0.3
  0.2
  0.2
  0.1
  0.1
  0.1
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0

Hess Corporation is an exploration and production company. The Company is engaged in exploration, development, production, transportation, purchase and sale of crude oil, natural gas liquids (NGL) and natural gas. The Company's segments include Exploration and Production, and Bakken Midstream. Its Exploration and Production segment explores for, develops, produces, purchases and sells crude oil, NGLs and natural gas with production operations primarily in the United States, Denmark, Equatorial Guinea, the Malaysia/Thailand Joint Development Area (JDA), Malaysia and Norway. The Bakken Midstream segment provides fee-based services, including crude oil and natural gas gathering, processing of natural gas and the fractionation of NGLs, transportation of crude oil by rail car, terminaling and loading crude oil and NGLs, and the storage and terminaling of propane, primarily in the Bakken shale play of North Dakota.

FINANCIAL RATIOS  of  Hess Corp. (HES)

Valuation Ratios
P/E Ratio -2.3
Price to Sales 2.9
Price to Book 1
Price to Tangible Book
Price to Cash Flow 17.7
Price to Free Cash Flow -9.7
Growth Rates
Sales Growth Rate -25.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -47.9%
Cap. Spend. - 3 Yr. Gr. Rate -17.2%
Financial Strength
Quick Ratio 24
Current Ratio 0.1
LT Debt to Equity 46.1%
Total Debt to Equity 46.8%
Interest Coverage -10
Management Effectiveness
Return On Assets -17.8%
Ret/ On Assets - 3 Yr. Avg. -6.5%
Return On Total Capital -25.9%
Ret/ On T. Cap. - 3 Yr. Avg. -9.8%
Return On Equity -36.2%
Return On Equity - 3 Yr. Avg. -13.7%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 75.9%
Gross Margin - 3 Yr. Avg. 78.3%
EBITDA Margin -5.6%
EBITDA Margin - 3 Yr. Avg. 17.1%
Operating Margin -73.4%
Oper. Margin - 3 Yr. Avg. -38.7%
Pre-Tax Margin -79.9%
Pre-Tax Margin - 3 Yr. Avg. -40.8%
Net Profit Margin -127.2%
Net Profit Margin - 3 Yr. Avg. -50.8%
Effective Tax Rate -57.7%
Eff/ Tax Rate - 3 Yr. Avg. 1.1%
Payout Ratio -5.7%

HES stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HES stock intrinsic value calculation we used $4821 million for the last fiscal year's total revenue generated by Hess Corp.. The default revenue input number comes from 2016 income statement of Hess Corp.. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our HES stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 5.8%, whose default value for HES is calculated based on our internal credit rating of Hess Corp., is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Hess Corp..
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of HES stock the variable cost ratio is equal to 125.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $2372 million in the base year in the intrinsic value calculation for HES stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5% for Hess Corp..

Corporate tax rate of 27% is the nominal tax rate for Hess Corp.. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the HES stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for HES are equal to 518%.

Life of production assets of 7.8 years is the average useful life of capital assets used in Hess Corp. operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for HES is equal to -12.3%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $14534 million for Hess Corp. - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 317.788 million for Hess Corp. is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Hess Corp. at the current share price and the inputted number of shares is $14.2 billion.

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▶ Hess Corp. Value Analysis (NYSE:HES) : October 27, 2017   [Oct-27-17 11:36AM  Capital Cube]
▶ What Is Hess Corporations (HES) Share Price Doing?   [Oct-25-17 03:08PM  Simply Wall St.]
▶ Earnings movers in the blitz   [01:15PM  CNBC Videos]
▶ Hess reports 3Q loss   [07:41AM  Associated Press]
▶ Hess Corp. to Host Earnings Call   [07:05AM  ACCESSWIRE]
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▶ [$$] Aker BP Buys Hess Assets   [02:29AM  The Wall Street Journal]
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▶ Leon Coopermans Solution for Low Oil Prices   [03:06PM  Market Realist]
▶ Is Oil Outperforming Oil-Weighted Stocks?   [Sep-12-17 03:41PM  Market Realist]
▶ Hess Announces Regular Quarterly Dividend on Common Stock   [Sep-06-17 05:00PM  Business Wire]
▶ Oasis Petroleums Implied Volatility: Forecasting Stock Price   [Sep-05-17 03:37PM  Market Realist]
Financial statements of HES
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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