Hess Outperforms Industry in 6 Months: Should You Buy the Stock?

Hess (HES) has outperformed the oil-energy sector in the past six months, gaining 13% driven by bullish momentum and cost controls, with upstream income rising 6.4% sequentially to $563M despite weaker oil prices. The company is strategically investing in high-return offshore Guyana projects, with over half of Q1 capex allocated there and the Yellowtail project on track for a Q3 2025 startup, though earnings remain sensitive to commodity price volatility, as evidenced by a year-over-year decline in E&P adjusted net income.

Analysis

Hess Corporation (HES) has demonstrated notable stock performance, gaining 13.4% over the past six months, thereby outperforming the broader oil-energy sector's 4.7% growth and the S&P 500 composite's 1.5% rise. This contrasts with competitors like Murphy Oil Corporation (MUR), which declined 10%, while ExxonMobil Corporation (XOM) gained 8% over the same period. Hess's positive momentum is supported by technical indicators, with the stock trading above its 50-day simple moving average. Fundamentally, the company's disciplined cost management was a key driver, evidenced by a 6.4% sequential increase in exploration and production (E&P) adjusted net income to $563 million in the first quarter of 2025, despite lower oil prices and reduced sales volumes. This was achieved through controlled cash operating costs of $12.27 per barrel of oil equivalent (Boe) and DD&A expenses of $13.25/Boe. Strategic capital allocation is evident, with Q1 2025 capital and exploratory expenditure rising to $1.09 billion from $927 million year-over-year, over half of which was directed towards high-return offshore Guyana projects. The Yellowtail project in Guyana, expected to commence production in Q3 2025 with an initial capacity of 250,000 barrels of oil per day, underscores future growth potential. Analysts project further upside, with an average price target of $160.97, representing a 13.56% increase from the last closing price, and Hess has a strong history of surpassing earnings estimates by an average of 9.58% over the last four quarters. However, significant risks persist, primarily E&P segment exposure to commodity price volatility. This was highlighted by a substantial year-over-year decline in Q1 E&P adjusted net income, which fell to $563 million from $997 million in Q1 2024, mainly due to lower realized oil prices and sales volumes. Underlifted sales volumes of 1.3 million barrels in Q1 2025 also contribute to earnings variability. These factors contribute to its Zacks Rank #3 (Hold) status, indicating a need for caution despite positive operational developments.

Key Decisions for Investors

• Investors should acknowledge Hess's strong operational execution, particularly in cost control and strategic investments in Guyana, which provide a solid foundation for potential long-term growth.
• Given the significant impact of commodity prices on earnings, as seen in the Q1 2025 year-over-year E&P income decline, closely monitor global oil price trends and market conditions before adjusting positions.
• While analyst targets suggest upside and Guyana projects are promising, the inherent volatility of the E&P sector and the current 'Hold' rating warrant a balanced approach, potentially maintaining existing positions while being prepared for price fluctuations.