With a $10.73 billion market cap, APA Corporation (APA) explores, develops, and produces oil and gas properties. The company operates in the United States, Egypt, and the United Kingdom. It operates gathering, processing, and transmission assets in West Texas and owns four Permian-to-Gulf Coast pipelines.

The company’s diversified, unhedged portfolio primarily benefited from high prices across all three product streams. And this has helped APA to manage its spending categories, such as capital investment, operating costs, and general & administrative, well despite supply chain disruptions and overall cost environment. Also, during the second quarter, the company reported a production of 385,000 barrels of oil equivalent (BOE) per day.

On August 23, APA announced the first discovery at Baja-1 in Block 53 offshore Suriname. Baja-1 was drilled to a depth of 5,290 meters and encountered 34 meters of net oil pay in a single interval with the Campanian.

“Our success at Baja marks the 6th oil discovery we have participated in offshore Suriname and the first on Block 53. This result confirms our geologic model for the Campanian in the area and helps to de-risk other prospects in the southern portion of Blocks 53 and 58,” said John J. Christmann, APA’s CEO and President.

In the same month, the company announced that it bought West Texas oil-producing land for $505 million during the second quarter, strengthening its position in the Delaware portion of the Permian shale basin. The assets acquired by the company are expected to add production of between 12,000 to 14,000 barrels of oil equivalent per day (BOE) through the rest of this year.

Furthermore, APA’s Board of Directors recently announced an increase in the company’s dividend from an annualized rate of 50 cents per share to $1 per share. The next quarterly dividend of 25 cents is payable on November 22. In addition, the Broad of Directors authorized the repurchase of an additional 40 million shares.

“Over the last year, we’ve significantly strengthened our balance sheet and committed to returning a minimum of 60% of free cash flow to our shareholders through dividend and stock repurchases. Most of this return is still being delivered through stock repurchases; however, we are confident that our long-term cash flow will comfortably support this step-up in the base dividend payment,” said John J. Christmann.

APA has gained 17.1% year-to-date and 52.6% over the past year to close the last trading session at $32.87.

Here is what could influence APA’s performance in the upcoming months:

Solid Financials

In the fiscal 2022 second quarter ended June 30, APA’s total revenue increased 73.5% year-over-year to $3.05 billion. The company's adjusted EBITDAX amounted to $1.96 billion, up 93.6% year-over-year. Its net income attributable to common stock grew 193% from the prior-year period to $926 million.

Furthermore, the company’s net income per common share came in at $2.71, registering an increase of 230.5% year-over-year. Cash inflows from operating activities rose 58.4% from the year-ago value to $1.54 billion. Also, free cash flow improved 100.5% year-over-year to $814 million.

Favorable Analyst Estimates

Analysts expect APA’s revenue for the fiscal 2022 third quarter (ending September 2022) to come in at $2.57 billion, indicating an increase of 55.5% from the prior-year period. The consensus EPS estimate for the current quarter is expected to grow 136.7% year-over-year to $2.32. The company has topped the consensus revenue estimates in three of the trailing four quarters, which is impressive.

In addition, the company’s revenue for the fiscal year 2022 (ending December 2022) is expected to rise 35.9% from the previous year to $10.77 billion. Analysts expect the current year’s EPS to rise 139.5% year-over-year to $9.34.

High Profitability

APA’s trailing-12-month gross profit margin of 70.89% is 77.6% higher than the 39.92% industry average. Its trailing-12-month EBITDA margin of 63.18% is 144.9% higher than the 25.80% industry average. Also, the stock’s trailing-12-month net income margin of 27.56% is 178.3% higher than the industry average of 9.90%.

Furthermore, APA’s trailing-12-month levered FCF margin of 31.70% compares to the industry average of 5.75%. The stock’s trailing-12-month ROTC and ROTA of 43.53% and 23.82% compare to the industry averages of 6.68% and 5.79%, respectively. Also, its trailing-12-month asset turnover ratio of 0.85% is 44.5% higher than the 0.58% industry average.

Attractive Valuation

In terms of forward non-GAAP P/E, APA is currently trading at 3.52x, 45.2% lower than the industry average of 6.43x. The stock’s forward EV/Sales multiple of 1.56 is 5.7% lower than the industry average of 1.65. Likewise, its forward EV/EBITDA ratio of 2.38 compares with an industry average of 7.39x.

In addition, in terms of forward Price/Sales, APA is currently trading at 1.00x, 15.8% lower than the industry average of 1.18x. The stock’s forward Price/Cash Flow multiple of 2.24 is 37.8% lower than the 3.60 industry average.

Consensus Rating and Price Target Indicate Potential Upside

Of the 14 Wall Street analysts that rated APA, 10 rated it Buy, while four rated it Hold. The 12-month median price target of $55.21 indicates a 68% potential upside. The price targets range from a low of $41.00 to a high of $75.00.

POWR Ratings Show Promise

APA's overall B rating equates to a Buy in our POWR Ratings system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight distinct categories. APA has a grade of A for Quality, in sync with its higher-than-industry profitability metrics. In addition, it has a B grade for Growth, consistent with its solid revenue and earnings growth estimates.

APA is ranked #10 out of 94 stocks in the B-rated Energy-Oil & Gas industry.

Beyond what I have stated above, we have also given APA grades for Sentiment, Value, Momentum, and Stability. Get access to all APA ratings here.

Bottom Line

APA has achieved solid top-and-bottom-line performance in its last quarter. Moreover, the company’s diversified portfolio, new strategic acquisitions, and a positive long-term outlook for energy demand indicate the company’s promising growth prospects. Given APA’s fundamental strength and attractive dividends, we think it could be wise to invest in this energy stock now.

How Does APA Corporation (APA) Stack Up Against its Peers?

APA has an overall POWR Rating of B. One could also check out these other stocks within the Energy-Oil & Gas industry with an A (Strong Buy) rating: Valero Energy Corp. (VLO), Marathon Petroleum Corp. (MPC), and Whitecap Resources, Inc. (SPGYF).

APA shares were trading at $33.03 per share on Monday morning, up $0.16 (+0.49%). Year-to-date, APA has gained 24.10%, versus a -21.62% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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