HES - Valens Credit Report - 2021 05 06
Credit markets are overstating credit risk, with a YTW of 2.236% and a CDS of 117bps relative to an Intrinsic YTW of 1.226% and Intrinsic CDS of 39bps. Furthermore, Moody's is overstating the firm's fundamental credit risk, with its Ba1 credit rating three notches lower than Valens' IG4+ (Baa1) credit ratingIncentives Dictate Behavior™ analysis highlights mostly favorable signals for credit holders. Management's compensation framework should drive them to focus on all three value drivers; asset efficiency, growth, and margins, which should lead to Uniform ROA improvement and higher cash flows available for servicing obligations. Additionally, management members are material owners of HES equity relative to their annual compensation, indicating they may be well-aligned with shareholders for long-term value creation
Valens' qualitative analysis of the firm's Q1 2021 earnings call highlights that management is confident their strategy focuses on minimizing costs of supply and sustaining cash flow growth
Hess is a global exploration and production company engaged in exploration, development, production, transportation, purchase and sale of crude oil, natural gas liquid (NGL), and natural gas with production operations located primarily in the United States, Guyana, the Malaysia/Thailand Joint Development Area, Malaysia and Denmark. The company's Midstream operating segment provides fee-based services, including gathering, compressing and processing natural gas and fractionating NGL; gathering, terminaling, loading and transporting crude oil and NGL; storing and terminaling propane, and water handling services primarily in the Bakken shale play in the Williston Basin area of North Dakota.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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