Three Steps to Unlock Hidden Asset Values
In order to unlock Hess’s potential hidden asset values, Elliott recommended three things. First, the company should spin off the Bakken, Eagle Ford, and Utica acreage. The spin off is estimated to create over $28 per share of additional value for Hess. Second, Hess should divest the downstream assets and monetize its midstream assets through MLP or REIT structures to release up to $5.5 billion of capital that could be returned to shareholders. This transaction could bring an additional value of $11 per share to shareholders. Last but not least, Hess was recommended to streamline the remaining international portfolio. The spinoff, downstream divestment, and midstream monetization would leave Hess International with many valuable long life oil assets globally. If Hess was valued at a similar valuation to its peers, more than $36 per share of additional value would be created for Hess’s shareholders. Thus, all three steps would bring total more than $76 per share of additional value, a 150% upside on the current share price.
Indeed, Hess has a much cheaper valuation compared to its peers, including Continental and Oasis. Hess’s enterprise value is $30.25 billion. The market is valuing Hess at 3.76x EV/EBITDA. At $83.70 per share, Continental has the most expensive valuation, with 12.37x EV/EBITDA. Oasis is trading at $37.05 per share, with the enterprise value of $4.1 billion. It is valued at 10.6x EV/EBITDA. Among the three, Oasis and Continental are not paying any dividends, while Hess is paying 0.6% dividend yield.
Foolish Bottom Line
Personally, I think Hess is quite undervalued compared to the values of its assets. However, it might take a long time for the company to unlock its hidden values. I would rather wait to see any further corporate developments before initiating a long position in this company.
The article Unlock Hess’ Hidden Asset Value originally appeared on Fool.com and is written by Anh HOANG.