Hess Corp.’s status as the most expensive stock in the S&P 500, by price-to-earnings ratio, shows the value of using multiple measures to assess whether shares are pricey or cheap.
Hess’ forward P/E of 929.6 is a reflection of a US$65 stock that’s expected to generate just a few cents in earnings next year — roughly 7 US cents, to be precise. But investors, and the analysts who cover it, are expecting more, later.
The global exploration and production company has been losing money in recent periods, and the forecast for the second quarter is for a loss of about 30 cents, roughly, depending on which data company is doing the tallying. After a small loss in the third quarter, the company is then expected to swing to a profit. By the time the books are closed next March, analysts expect Hess to have done slightly better than break-even.
By another mark, Hess is reasonably priced. That’s signified by the company’s reasonable multiple of enterprise value — market capitalization plus net debt — to EBITDA, or earnings before interest, taxes, depreciation and amortization. Hess is trading at about 9.2 times forward earnings by that measure — which actually puts it in the bottom half of the S&P 500 in valuation on an EV/EBITDA basis, according to S&P Global Market Intelligence.
In the energy space, there are six companies in the S&P 500 with forward EV/EBITDAs of 10 or higher, including National Oilwell Varco Inc. at 18.