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Hess -- What's This Oil Stock Worth, Based on Fundamentals?

Stocks in this article: HES CVX XOM

NEW YORK (TheStreet) -- Benjamin Graham taught that intelligent investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk. That advice holds true today.

This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing "5 Undervalued Companies for the Defensive Investor."  By using the ModernGraham method one can review a company's historical accomplishments and determine an intrinsic value that can be compared across industries.  

So let's take a specific look at how Hess (HES) fares in our valuation model. Late Wednesday the stock was trading in the $89 range, up 1.6% for the day.

HES Chart

HES data by YCharts

In our view, there are two types of investors: defensive (more conservative, less able to conduct research) and enterprising (more willing to take risk and conduct research). Any stock suitable for a defensive investor is also appropriate for an enterprising investor. Let's look at the stock for each type of investor.

Defensive Investor -- Must pass at least 6 of the following 7 tests. Score = 6/7

  1. Adequate Size of Enterprise -- market capitalization of at least $2 billion -- PASS
  2. Sufficiently Strong Financial Condition -- current ratio greater than 2 -- FAIL
  3. Earnings Stability -- positive earnings per share for at least 10 straight years -- PASS
  4. Dividend Record -- has paid a dividend for at least 10 straight years -- PASS
  5. Earnings Growth -- earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period -- PASS
  6. Moderate PEmg ratio -- PEmg is less than 20 -- PASS
  7. Moderate Price to Assets -- PB ratio is less than 2.5 or PB x PEmg is less than 50 -- PASS

Enterprising Investor -- Must pass at least 4 of the following 5 tests or be suitable. Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 -- current ratio greater than 1.5 -- FAIL
  2. Sufficiently Strong Financial Condition, Part 2 -- Debt to Net Current Assets ratio less than 1.1 -- FAIL
  3. Earnings Stability -- positive earnings per share for at least 5 years -- PASS
  4. Dividend Record -- currently pays a dividend -- PASS
  5. Earnings growth -- EPSmg greater than 5 years ago -- PASS

Next up: a valuation summary.

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