Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Gold/Mining/Energy : ENERGY EXPLORATION & PRODUCTION -- Ignore unavailable to you. Want to Upgrade?

To: Dennis Roth who wrote (39)	12/10/2007 8:35:59 AM
From: Dennis Roth	Read Replies (1) \| Respond to of 111

Hess Corp. (HES): Removing Hess from Americas Buy List on relative valuation - Goldman Sachs - 12/09/07 What happened We are removing Hess shares from the Americas Buy List on the basis of a less attractive relative valuation and now rate it Neutral. Since being added to the list on August 9, 2007, Hess shares are +37% versus +13% for the XOI (AMEX integrated oil index) and +4% for the S&P 500. The shares now have 7% downside to our unchanged $73, 12-month target price. We see meaningfully better risk/reward in refining-leveraged companies such as Marathon Oil among integrated oils as well as Sunoco and Valero Energy among pure-play refiners (all Buy rated; SUN also Conviction Buy). Over the last 12-months, Hess shares are +53% and the S&P 500 is +7%. Current view There is no change to the positive fundamental view we have of Hess. We continue to believe its E&P business is on-track to meet its production objective of 3%-5% per annum long-term growth, while also delivering competitive reserve replacement and finding and development cost performance. We also believe it has an attractive exploration program both in the deepwater Gulf of Mexico and increasingly internationally (Brazil, Australia, Ghana, and Libya). Furthermore, Hess shares remain favorably leveraged to our bullish oil price view for the next several years. However, with Hess now showing 7% downside to our $73, 12-month target price (based on asset value, P/E and cash flow valuation analyses; key risk is sustained lower oil prices), we see more compelling risk/reward in the shares of other companies in the sector, in particular refining-leveraged companies such as Marathon Oil, Sunoco, and Valero Energy. Following its strong performance, Hess now trades at parity with the other North America integrated oils on 2008E and 2009E cash flow multiples. Investors should not view this as a call to “sell” Hess given our continued favorable fundamental view. Rather, the most compelling entry point for energy stocks is usually after a period of relative undeperformance rather than outperformance. Hence our focus on refining leveraged companies at the current time. Key risk is sustained lower commodity prices.