Intrinsic value of Hess Corp. - HES

Previous Close

$44.13

  Intrinsic Value

$11.46

stock screener

  Rating & Target

str. sell

-74%

  Value-price divergence*

-35%

Previous close

$44.13

 
Intrinsic value

$11.46

 
Up/down potential

-74%

 
Rating

str. sell

 
Value-price divergence*

-35%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

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 13.6

 

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
  28.40
  26.06
  23.95
  22.06
  20.35
  18.82
  17.44
  16.19
  15.07
  14.07
  13.16
  12.34
  11.61
  10.95
  10.35
  9.82
  9.34
  8.90
  8.51
  8.16
  7.84
  7.56
  7.30
  7.07
  6.87
  6.68
  6.51
  6.36
  6.22
  6.10
Revenue, $m
  4,821
  6,190
  7,803
  9,673
  11,806
  14,209
  16,883
  19,826
  23,037
  26,509
  30,238
  34,217
  38,440
  42,903
  47,600
  52,528
  57,685
  63,070
  68,685
  74,532
  80,614
  86,938
  93,511
  100,342
  107,440
  114,817
  122,487
  130,463
  138,761
  147,399
  156,393
Variable operating expenses, $m
 
  7,752
  9,762
  12,092
  14,751
  17,745
  21,077
  24,746
  28,746
  33,074
  37,720
  42,642
  47,905
  53,466
  59,320
  65,461
  71,888
  78,600
  85,597
  92,883
  100,463
  108,344
  116,536
  125,048
  133,894
  143,088
  152,646
  162,586
  172,927
  183,692
  194,901
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
  10,183
  12,254
  14,646
  17,369
  20,429
  23,828
  27,566
  31,636
  36,036
  40,756
  45,754
  51,095
  56,736
  62,672
  68,896
  75,409
  82,209
  89,297
  96,675
  104,350
  112,328
  120,620
  129,234
  138,184
  147,486
  157,153
  167,206
  177,663
  188,546
  199,876
Operating income, $m
  -3,539
  -3,993
  -4,451
  -4,973
  -5,563
  -6,220
  -6,945
  -7,739
  -8,600
  -9,527
  -10,519
  -11,537
  -12,655
  -13,833
  -15,072
  -16,369
  -17,724
  -19,139
  -20,611
  -22,143
  -23,736
  -25,390
  -27,108
  -28,892
  -30,744
  -32,668
  -34,666
  -36,743
  -38,902
  -41,147
  -43,483
EBITDA, $m
  -295
  -749
  -371
  74
  590
  1,178
  1,838
  2,569
  3,371
  4,242
  5,182
  6,187
  7,257
  8,390
  9,585
  10,841
  12,156
  13,532
  14,968
  16,464
  18,022
  19,644
  21,331
  23,085
  24,910
  26,807
  28,782
  30,837
  32,977
  35,206
  37,529
Interest expense (income), $m
  338
  335
  535
  769
  1,040
  1,350
  1,699
  2,087
  2,514
  2,980
  3,484
  4,025
  4,603
  5,216
  5,864
  6,546
  7,261
  8,010
  8,791
  9,606
  10,455
  11,338
  12,256
  13,210
  14,202
  15,232
  16,303
  17,416
  18,574
  19,779
  21,033
Earnings before tax, $m
  -3,854
  -4,328
  -4,985
  -5,742
  -6,603
  -7,570
  -8,644
  -9,825
  -11,114
  -12,507
  -14,003
  -15,562
  -17,258
  -19,049
  -20,935
  -22,914
  -24,985
  -27,148
  -29,403
  -31,750
  -34,191
  -36,728
  -39,364
  -42,102
  -44,946
  -47,900
  -50,969
  -54,159
  -57,476
  -60,926
  -64,515
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
  -4,328
  -4,985
  -5,742
  -6,603
  -7,570
  -8,644
  -9,825
  -11,114
  -12,507
  -14,003
  -15,562
  -17,258
  -19,049
  -20,935
  -22,914
  -24,985
  -27,148
  -29,403
  -31,750
  -34,191
  -36,728
  -39,364
  -42,102
  -44,946
  -47,900
  -50,969
  -54,159
  -57,476
  -60,926
  -64,515

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
  33,280
  41,953
  52,003
  63,474
  76,393
  90,768
  106,594
  123,854
  142,522
  162,569
  183,961
  206,668
  230,660
  255,912
  282,407
  310,133
  339,088
  369,275
  400,708
  433,410
  467,411
  502,749
  539,471
  577,633
  617,296
  658,531
  701,414
  746,029
  792,466
  840,824
Adjusted assets (=assets-cash), $m
  25,889
  33,280
  41,953
  52,003
  63,474
  76,393
  90,768
  106,594
  123,854
  142,522
  162,569
  183,961
  206,668
  230,660
  255,912
  282,407
  310,133
  339,088
  369,275
  400,708
  433,410
  467,411
  502,749
  539,471
  577,633
  617,296
  658,531
  701,414
  746,029
  792,466
  840,824
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
  32,065
  40,421
  50,104
  61,156
  73,603
  87,453
  102,701
  119,330
  137,317
  156,632
  177,243
  199,120
  222,236
  246,566
  272,094
  298,807
  326,704
  355,789
  386,074
  417,582
  450,341
  484,388
  519,770
  556,538
  594,753
  634,482
  675,798
  718,784
  763,526
  810,117
Working capital, $m
  2,025
  -619
  -780
  -967
  -1,181
  -1,421
  -1,688
  -1,983
  -2,304
  -2,651
  -3,024
  -3,422
  -3,844
  -4,290
  -4,760
  -5,253
  -5,768
  -6,307
  -6,869
  -7,453
  -8,061
  -8,694
  -9,351
  -10,034
  -10,744
  -11,482
  -12,249
  -13,046
  -13,876
  -14,740
  -15,639
Total debt, $m
  6,806
  10,690
  15,374
  20,801
  26,995
  33,971
  41,734
  50,280
  59,600
  69,681
  80,506
  92,058
  104,320
  117,275
  130,912
  145,219
  160,191
  175,826
  192,127
  209,101
  226,760
  245,121
  264,203
  284,034
  304,641
  326,059
  348,326
  371,483
  395,575
  420,651
  446,764
Total liabilities, $m
  14,087
  17,971
  22,655
  28,082
  34,276
  41,252
  49,015
  57,561
  66,881
  76,962
  87,787
  99,339
  111,601
  124,556
  138,193
  152,500
  167,472
  183,107
  199,408
  216,382
  234,041
  252,402
  271,484
  291,315
  311,922
  333,340
  355,607
  378,764
  402,856
  427,932
  454,045
Total equity, $m
  14,534
  15,309
  19,299
  23,921
  29,198
  35,141
  41,753
  49,033
  56,973
  65,560
  74,782
  84,622
  95,067
  106,103
  117,720
  129,907
  142,661
  155,980
  169,866
  184,326
  199,369
  215,009
  231,264
  248,157
  265,711
  283,956
  302,924
  322,650
  343,173
  364,535
  386,779
Total liabilities and equity, $m
  28,621
  33,280
  41,954
  52,003
  63,474
  76,393
  90,768
  106,594
  123,854
  142,522
  162,569
  183,961
  206,668
  230,659
  255,913
  282,407
  310,133
  339,087
  369,274
  400,708
  433,410
  467,411
  502,748
  539,472
  577,633
  617,296
  658,531
  701,414
  746,029
  792,467
  840,824
Debt-to-equity ratio
  0.468
  0.700
  0.800
  0.870
  0.920
  0.970
  1.000
  1.030
  1.050
  1.060
  1.080
  1.090
  1.100
  1.110
  1.110
  1.120
  1.120
  1.130
  1.130
  1.130
  1.140
  1.140
  1.140
  1.140
  1.150
  1.150
  1.150
  1.150
  1.150
  1.150
  1.160
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
  -4,328
  -4,985
  -5,742
  -6,603
  -7,570
  -8,644
  -9,825
  -11,114
  -12,507
  -14,003
  -15,562
  -17,258
  -19,049
  -20,935
  -22,914
  -24,985
  -27,148
  -29,403
  -31,750
  -34,191
  -36,728
  -39,364
  -42,102
  -44,946
  -47,900
  -50,969
  -54,159
  -57,476
  -60,926
  -64,515
Depreciation, amort., depletion, $m
  3,244
  3,244
  4,080
  5,048
  6,153
  7,398
  8,783
  10,308
  11,971
  13,769
  15,701
  17,724
  19,912
  22,224
  24,657
  27,209
  29,881
  32,670
  35,579
  38,607
  41,758
  45,034
  48,439
  51,977
  55,654
  59,475
  63,448
  67,580
  71,878
  76,353
  81,012
Funds from operations, $m
  748
  -1,084
  -906
  -694
  -450
  -172
  139
  482
  857
  1,262
  1,698
  2,162
  2,654
  3,174
  3,721
  4,295
  4,895
  5,522
  6,176
  6,858
  7,567
  8,306
  9,075
  9,875
  10,708
  11,575
  12,479
  13,421
  14,403
  15,427
  16,496
Change in working capital, $m
  -47
  -137
  -161
  -187
  -213
  -240
  -267
  -294
  -321
  -347
  -373
  -398
  -422
  -446
  -470
  -493
  -516
  -539
  -561
  -585
  -608
  -632
  -657
  -683
  -710
  -738
  -767
  -798
  -830
  -864
  -899
Cash from operations, $m
  795
  -947
  -745
  -507
  -236
  69
  406
  777
  1,178
  1,610
  2,070
  2,560
  3,077
  3,620
  4,191
  4,788
  5,411
  6,061
  6,738
  7,442
  8,176
  8,938
  9,732
  10,558
  11,418
  12,313
  13,246
  14,218
  15,232
  16,291
  17,396
Maintenance CAPEX, $m
  0
  -2,497
  -3,207
  -4,042
  -5,010
  -6,116
  -7,360
  -8,745
  -10,270
  -11,933
  -13,732
  -15,663
  -17,724
  -19,912
  -22,224
  -24,657
  -27,209
  -29,881
  -32,670
  -35,579
  -38,607
  -41,758
  -45,034
  -48,439
  -51,977
  -55,654
  -59,475
  -63,448
  -67,580
  -71,878
  -76,353
New CAPEX, $m
  -2,251
  -7,092
  -8,356
  -9,682
  -11,052
  -12,447
  -13,850
  -15,248
  -16,629
  -17,987
  -19,315
  -20,611
  -21,877
  -23,116
  -24,330
  -25,527
  -26,714
  -27,897
  -29,085
  -30,286
  -31,508
  -32,759
  -34,048
  -35,381
  -36,768
  -38,215
  -39,729
  -41,317
  -42,986
  -44,742
  -46,592
Cash from investing activities, $m
  -2,090
  -9,589
  -11,563
  -13,724
  -16,062
  -18,563
  -21,210
  -23,993
  -26,899
  -29,920
  -33,047
  -36,274
  -39,601
  -43,028
  -46,554
  -50,184
  -53,923
  -57,778
  -61,755
  -65,865
  -70,115
  -74,517
  -79,082
  -83,820
  -88,745
  -93,869
  -99,204
  -104,765
  -110,566
  -116,620
  -122,945
Free cash flow, $m
  -1,295
  -10,536
  -12,307
  -14,232
  -16,299
  -18,494
  -20,804
  -23,217
  -25,722
  -28,310
  -30,976
  -33,715
  -36,525
  -39,407
  -42,363
  -45,396
  -48,512
  -51,717
  -55,017
  -58,422
  -61,939
  -65,579
  -69,350
  -73,262
  -77,327
  -81,556
  -85,958
  -90,547
  -95,333
  -100,329
  -105,548
Issuance/(repayment) of debt, $m
  84
  3,996
  4,683
  5,427
  6,194
  6,976
  7,763
  8,546
  9,320
  10,081
  10,825
  11,552
  12,262
  12,956
  13,636
  14,307
  14,972
  15,635
  16,301
  16,974
  17,659
  18,360
  19,083
  19,830
  20,607
  21,418
  22,267
  23,157
  24,092
  25,076
  26,113
Issuance/(repurchase) of shares, $m
  1,644
  7,723
  8,975
  10,365
  11,879
  13,512
  15,256
  17,105
  19,053
  21,094
  23,225
  25,403
  27,703
  30,086
  32,552
  35,102
  37,740
  40,467
  43,289
  46,209
  49,234
  52,368
  55,620
  58,994
  62,500
  66,145
  69,937
  73,885
  77,999
  82,287
  86,760
Cash from financing (excl. dividends), $m  
  1,661
  11,719
  13,658
  15,792
  18,073
  20,488
  23,019
  25,651
  28,373
  31,175
  34,050
  36,955
  39,965
  43,042
  46,188
  49,409
  52,712
  56,102
  59,590
  63,183
  66,893
  70,728
  74,703
  78,824
  83,107
  87,563
  92,204
  97,042
  102,091
  107,363
  112,873
Total cash flow (excl. dividends), $m
  366
  1,183
  1,351
  1,560
  1,775
  1,994
  2,215
  2,435
  2,652
  2,865
  3,074
  3,240
  3,439
  3,634
  3,825
  4,013
  4,200
  4,386
  4,572
  4,761
  4,953
  5,150
  5,353
  5,562
  5,780
  6,008
  6,246
  6,495
  6,758
  7,034
  7,325
Retained Cash Flow (-), $m
  4,852
  -7,723
  -8,975
  -10,365
  -11,879
  -13,512
  -15,256
  -17,105
  -19,053
  -21,094
  -23,225
  -25,403
  -27,703
  -30,086
  -32,552
  -35,102
  -37,740
  -40,467
  -43,289
  -46,209
  -49,234
  -52,368
  -55,620
  -58,994
  -62,500
  -66,145
  -69,937
  -73,885
  -77,999
  -82,287
  -86,760
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
 
  -3,919
  -7,624
  -8,805
  -10,104
  -11,518
  -13,041
  -14,671
  -16,401
  -18,229
  -20,151
  -22,163
  -24,264
  -26,452
  -28,727
  -31,089
  -33,540
  -36,081
  -38,716
  -41,448
  -44,280
  -47,218
  -50,267
  -53,432
  -56,720
  -60,137
  -63,692
  -67,390
  -71,241
  -75,253
  -79,435
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
 
  -3,704
  -6,774
  -7,311
  -7,792
  -8,193
  -8,497
  -8,688
  -8,756
  -8,698
  -8,514
  -8,210
  -7,799
  -7,295
  -6,718
  -6,088
  -5,426
  -4,755
  -4,094
  -3,462
  -2,872
  -2,337
  -1,863
  -1,453
  -1,109
  -827
  -601
  -427
  -295
  -198
  -129
Current shareholders' claim on cash, %
  100
  59.1
  36.4
  23.1
  15.1
  10.1
  6.9
  4.8
  3.4
  2.4
  1.8
  1.3
  1.0
  0.7
  0.5
  0.4
  0.3
  0.2
  0.2
  0.1
  0.1
  0.1
  0.1
  0.1
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0

Hess Corporation, an exploration and production company, develops, produces, purchases, transports, and sells crude oil, natural gas liquids, and natural gas. The company operates in two segments, Exploration and Production, and Bakken Midstream. It is also involved in crude oil and natural gas gathering, processing of natural gas and the fractionation of natural gas liquids, transportation of crude oil by rail car, terminaling and loading crude oil and natural gas liquids, and the storage and terminating of propane primarily in the Bakken and Three Forks Shale plays in the Williston Basin area of North Dakota. The company operates primarily in the United States, Denmark, Equatorial Guinea, the Joint Development Area of Malaysia/Thailand, Malaysia, and Norway. As of December 31, 2016, it had total proved reserves of 1,109 million barrels of oil equivalent. The company was founded in 1920 and is headquartered in New York, New York.

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 17.6
Price to Free Cash Flow -9.6
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. -6.6%
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. 5.9%
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 28.4% 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 10 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 -10%. 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 308.943 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 $13.6 billion.

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COMPANY NEWS

▶ What to Watch in the Bakken Shale This Quarter   [Jul-24-17 07:45PM  Motley Fool]
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▶ Oil Up As Saudis Consider Deeper Output Cuts   [Jul-18-17 03:00PM  Oilprice.com]
▶ Oil downgrades, financials & retail in the blitz   [Jul-17-17 01:43PM  CNBC Videos]
▶ The Next Oil Boom Could Be Here Sooner Than You Think   [Jul-15-17 03:15PM  Motley Fool]
▶ Whiting Petroleums Production Expectations for 2017   [Jul-14-17 07:39AM  Market Realist]
▶ Hess Schedules Earnings Release Conference Call   [Jul-05-17 09:47AM  Business Wire]
▶ How Oil-Weighted Stocks Performed Last Week   [08:29AM  Market Realist]
▶ Behind Hesss Big Permian Asset Sale to Occidental   [Jun-26-17 12:33PM  Market Realist]
▶ [$$] US energy stocks hit by reversal of fortune in 2017   [Jun-22-17 01:55PM  Financial Times]
▶ Oils Fall Hurt Oil-Weighted Stocks Returns   [01:25PM  Market Realist]
▶ Oxy makes two $600M deals to sell, buy Permian assets   [Jun-19-17 06:28PM  American City Business Journals]
▶ ExxonMobil: Going Deep   [03:49PM  Barrons.com]
▶ Looking at Trends in Oasis Petroleum Stock   [Jun-16-17 03:31PM  Market Realist]
▶ Are Oil-Weighted Stocks Outperforming Crude Oil?   [Jun-13-17 02:01PM  Market Realist]
▶ [$$] A Shale-Oil Boomtown Climbs Back From the Bust   [Jun-12-17 12:50AM  The Wall Street Journal]
▶ Hess Announces Quarterly Cash Dividend on Preferred Stock   [Jun-06-17 09:39PM  Business Wire]
▶ Which Oil-Weighted Stocks Outdid Oil Prices?   [01:22PM  Market Realist]
▶ Hess Is in Accumulation Zone   [03:48PM  GuruFocus.com]
▶ US stocks slide further as banks and energy companies sink   [May-31-17 04:58PM  Associated Press]
▶ Which Oil-Weighted Stocks Could Fall More Than Oil?   [May-30-17 04:27PM  Market Realist]
▶ These Energy Stocks Could Have More Upside than Oil   [May-23-17 02:50PM  Market Realist]
▶ ETFs with exposure to Hess Corp. : May 22, 2017   [May-22-17 01:43PM  Capital Cube]
▶ Guyana Oil: From Rags To Riches   [May-21-17 01:00AM  Oilprice.com]
▶ ETFs with exposure to Hess Corp. : May 11, 2017   [May-11-17 04:48PM  Capital Cube]
▶ Why Oil Prices Could Double to $90   [06:00AM  Investopedia]
▶ Oil-Weighted Stocks That Could Beat Crude Oil   [May-09-17 10:46AM  Market Realist]
▶ Which Oil-Weighted Stocks Could Outdo Crude Oil?   [May-02-17 10:20AM  Market Realist]
▶ Key Trends in Whiting Petroleums Implied Volatility   [Apr-28-17 10:38AM  Market Realist]
▶ Hess reports 1Q loss   [07:36AM  Associated Press]
▶ Hess Named to 2017 Best Corporate Citizens List   [Apr-21-17 11:03AM  Business Wire]
▶ Hess Corp. Value Analysis (NYSE:HES) : April 13, 2017   [Apr-13-17 12:53PM  Capital Cube]
▶ Could Guyana Become The Next Oil Hot Spot?   [Apr-12-17 03:00PM  Oilprice.com]
▶ US Oil Rose 11% from 2017 Lows: Oil-Weighted Stocks to Track   [Apr-11-17 12:57PM  Market Realist]
▶ Hess' Houston-based MLP prices upsized IPO above expected range   [Apr-10-17 02:50PM  American City Business Journals]
▶ Hess Schedules Earnings Release Conference Call   [Apr-07-17 01:41PM  Business Wire]
▶ Cooperman: Very selective with energy   [Apr-05-17 12:29PM  CNBC Videos]
▶ Exxon in talks to expand into Brazil - WSJ   [Apr-04-17 01:05PM  Reuters]
▶ 6 IPOs on Calendar for Week of April 3   [Apr-02-17 09:25AM  24/7 Wall St.]
Stock chart of HES Financial statements of HES Annual reports 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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