Why Hess Corp. Shares Could Pop Another 20%

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Hess  (NYSE: HES  ) gained slightly today after Deutsche Bank initiated coverage on the oil and gas producer with a buy rating.

So what: Along with the bullish call, analyst Ryan Todd planted a price target of $112 on the stock, representing 19% worth of upside to yesterday's close. So while contrarian traders might be turned off by Hess' price strength over the past year, Todd's call could reflect a sense on Wall Street that its growth prospects still aren't fully baked into the valuation.

Now what: According to Deutsche, Hess' risk/reward trade-off remains rather attractive. "Hess' aggressive restructuring has been a clear win for the company, outperforming the XLE/EPX by 20%/25% since January 2012," said Todd. "Although we acknowledge that the tailwind of restructuring is in the later innings (only the MLP of the midstream assets remains in 2015), we believe that the ongoing story is likely more sustainable than the market expects, with significant growth in FCF from 2015 forward, and outstanding flexibility to accelerate in two premier assets (Bakken, Utica) or return additional cash to shareholders." Given Hess' hefty debt load, highly volatile shares, and red-hot price momentum, however, I'd hold out for a wider margin of safety before betting on that bullishness. 

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