HES Breaking Out

Wednesday’s Earnings Could be the Catalyst

By Bryan Bottarelli
Monday, January 29, 2007 1:15 PM EST
Mon, 29 Jan 2007 18:15:00 GMT

Dear Bottarelli Research Member,

As you know, I’ve been closely following the oil-patch sector — and the strongest name in the group is the overlooked and often under appreciated Hess Corporation (HES – NYSE).

While most of the other major oil names are struggling to gain traction, HES has extended its rally by breaking through its previous high at $52.00. This is a strong upside signal — and it could mean that HES continues to run here in the near term.

HES

But here’s the thing: Hess has a scheduled earnings announcement for the morning of Wednesday, January 31st. And if you look at the recent oil trading action leading up into earnings, you’ll see a mixed bag.

On one hand, you have Schlumberger (SLB — NYSE), who reported on January 22nd that Q4 revenues increased by 33% to $5.35 billion, leading to fully diluted per-share earnings of $0.92 per share — up from $0.52 per share a year earlier. On the news, SLB jumped higher, as you can see.

SLB

On the other hand, you have ConocoPhillips (COP – NYSE), who reported on January 25th that Q4 profits fell, leading to earnings of $3.2 billion, or $1.91 per share, versus year-ago earnings of $3.7 billion, or $2.61 per share. The stock lost $1.56 on the news, as you can see.

COP

Now here’s the interesting thing: COP’s largest profits shortfall came from U.S. exploration and production operations, which fell $453 million. But since HES operates in the United Kingdom, Norway, Denmark, Equatorial Guinea, Algeria, Gabon, Indonesia, Thailand, Azerbaijan, Russia, and Malaysia — this will most likely not be a drag on HES as it was for COP.

And that leads me back to today’ action — which has witnessed HES rally in anticipation of their Wednesday morning earnings report. Even more impressive is that HES is moving higher on a day that oil prices are down $0.93. Does somebody know something in advance of Wednesday’s earnings report? I can’t help but ask this question in my mind.

At any rate, I’d like to take a short-term speculative position in HES. Specifically, I like the HES March 55 Calls (IGG CK), which are currently trading between $1.60 and $1.70. Let’s enter them today — and look to take a quick profit leading into Wednesday’s earnings call. Here’s the play:

PLAY: Buy the HES March 55 Calls (IGG CK) at or under $1.85, good for the day. Place a protective stop loss at $1.10.

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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