Will Hess (HES) Stock be Affected by Analyst Downgrade?

NEW YORK (TheStreet) -- Shares of Hess Corp. (HES) are dropping 1.46% to $68.64 in Monday's early morning trading after Goldman Sachs downgraded the New York-based company to "neutral" from "buy," and lowered its price target to $68 from $80.

The rating downgrade and price target change comes after Hess-owned oil railcars cars derailed near Heimdal, ND on May 6, reported Reuters.

In response to the derailment, a Hess spokesman said the crude complied with a new state rule requiring the treatment of crude oil that is meant to make it less prone to explode, The Wall Street Journal reported.

Additionally, the company reported first quarter results at the end of April. It reported revenue of $1.55 million, or loss of $0.98 per share, compared to revenue of $2.6 million, or loss off $1.38 per share in the same quarter a year ago. 

"Our financial results were impacted by lower crude oil and natural gas selling prices," CEO John Hess said. 

TheStreet Ratings team rates HESS CORP as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate HESS CORP (HES) a HOLD. The primary factors that have impacted our rating are mixed, some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its reasonable valuation levels, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company's earnings per share, deteriorating net income and disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • HES's debt-to-equity ratio is very low at 0.28 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.93 is somewhat weak and could be cause for future problems.
  • 46.68% is the gross profit margin for HESS CORP which we consider to be strong. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, HES's net profit margin of -25.29% significantly underperformed when compared to the industry average.
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. In comparison to the other companies in the Oil, Gas & Consumable Fuels industry and the overall market, HESS CORP's return on equity is significantly below that of the industry average and is below that of the S&P 500.
  • Net operating cash flow has significantly decreased to $362.00 million or 68.73% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
  • You can view the full analysis from the report here: HES Ratings Report

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