Morgan Stanley is upgrading Hess Corporation HES to Overweight as the stock's almost unprecedented discount to oil looks unsustainable. Oil is up 16% YTD, HES has the second highest and growing oil leverage in the group and recently made an exploration discovery in Ghana, yet the stock is flat YTD, lagging peers by 10-15%.
Morgan Stanley believes the headwind to the group and HES are concerns that either oil prices go higher, reducing oil demand, crude prices and energy stocks, or oil prices go lower and stocks trade lower as is seasonally the case. Hence, capital appears to be “waiting for the oil pullback”, according to Morgan Stanley.
Morgan Stanley sees HES operations continuing to improve with 4-5%/yr production growth from 2011-2015. It believes the stock will return to its historic relative valuation to peers and receive $10/share for the risked exploration portfolio.
Morgan Stanley has a $105 PT and Overweight rating on HES
HES closed Thursday at $76.52
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