Hess Corporation (HES), one of the world’s leading energy companies, could be merging with Chevron for $53 billion if all goes well in the shareholder meeting. It would represent one of the largest oil mergers in history.
The stock is down more than 6% in the past month as the company’s internal turmoil has played out in the media, with shareholders remaining split as to whether or not they’d vote on the matter. The news of the deal has led to nearly $5 billion in market value erosion.
CEO John Hess has spent the last month or so trying to sway shareholders in favor of the deal. This time last month it looked like a sure thing – but the few weeks leading into today’s voting deadline have shown more and more disarray.
The problem for Hess is the number of shares they need to capture to win the vote – a 50% approval is necessary, and that accounts for 308 million outstanding shares.
Many of these are held by investment funds, which are the big players holding the deal back amidst uncertainty. These include Vanguard Group and Black Rock.
Hess knows for sure he can count on at least 10% of shares held by family, directors, and other management, but that won’t get the deal done.
The vote will happen today, but even if it passes, there are still hurdles to jump through. For example, there is an arbitration dispute with Exxon Mobil which could delay closing until next year, or worse, squash the merger altogether.
The company’s real value is in its Guyana assets, which is what Chevron is interested in. If this deal fails to close, there likely won’t be another buyer interested in the company as a whole – although Exxon Mobil could be compelled to purchase the assets in Guyana at least.
In the meantime, HES itself is an attractive risk/reward play. If the deal goes through, shares will likely skyrocket. If not, they may end up plummeting.
So, where does that leave you as a current or prospective investor? We’ve taken a look through the VectorVest stock market software and found a few things you need to see.
HES Has Fair Upside Potential, Safety, and Timing
VectorVest is a proprietary stock rating system that tells you what to buy, when to buy it, and when to sell it. It saves you time and stress by delivering clear, actionable insights in just 3 ratings: relative value (RV), relative safety (RS), and relative timing (RT).
Each rating sits on a scale of 0.00-2.00 with 1.00 being the average. This makes interpretation quick and easy. But, it gets even better. You’re given a clear buy, sell, or hold recommendation for any given stock based on the overall VST rating. Here’s what we found for HES:
- Fair Upside Potential: The RV rating is a far superior indicator than the typical comparison of price to value alone. It compares a stock’s long-term price appreciation potential (forecasted 3 years out), AAA corporate bond rates, and risk. HES has a fair RV rating of 1.09 and appears to be undervalued. The stock is currently valued at $172/share.
- Fair Safety: The RS rating is a risk indicator computed from an analysis of the company’s financial consistency & predictability, debt-to-equity ratio, business longevity, sales volume, price volatility, and other factors. HES has a fair RS rating of 0.93.
- Fair Timing: The RT rating assesses a stock’s price trend in both the short and long term. It’s based on the direction, dynamics, and magnitude of price movements day over day, week over week, quarter over quarter, and year over year. The RT rating of 1.06 is fair for HES.
The overall VST rating of 1.03 is fair for HES but not enough to move the needle either way - the stock is currently rated a HOLD. But before you go, take a moment to review a free stock analysis here at VectorVest and learn more about this situation!
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Use VectorVest to analyze any stock free. VectorVest is the only stock analysis tool and portfolio management system that analyzes, ranks and graphs over 18,000 stocks each day for value, safety, and timing and gives a clear buy, sell or hold rating on every stock, every day.
VectorVest advocates buying safe, undervalued stocks, rising in price. HES is on the clock right now to get a majority shareholder approval for the $53b Chevron deal. It hasn’t been looking good for the oil company as many investors claimed they weren’t even going to vote - but we’ll soon know the verdict. In the meantime, HES has fair upside potential, safety, and timing.
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