🚀 AI-picked stocks soar in May. PRFT is +55%—in just 16 days! Don’t miss June’s top picks.Unlock full list

Barclays downbeat on Apache Corp stock valuation

EditorEmilio Ghigini
Published 04/10/2024, 04:54 AM
APA
-

On Wednesday, Barclays initiated coverage on Apache Corp (NASDAQ:APA) stock with an Equal Weight rating and established a price target of $40.00. The firm cited Apache's robust free cash flow (FCF) generation as a positive factor. However, it also pointed out that a discount valuation is justified due to the company's short duration portfolio and significant abandonment liability.

The analysis highlighted that Apache has one of the highest FCF yields within their coverage universe, partly due to the stock's underperformance following the announcement of its merger with CPE, which was seen as accretive to valuation and FCF yield.

Despite the merger's benefits, Barclays believes that Apache's challenges, including its short inventory life in the U.S., the difficult economic environment in Egypt, geopolitical tensions in the region, and high tax and environmental liabilities in the North Sea, justify a more cautious valuation.

Barclays also noted that while the Suriname project is expected to add long-term value and profitable production growth starting in 2028, it is not sufficient to alter the company's portfolio mix without further exploration success. The firm acknowledged the potential for better-than-expected operational and cost synergies from the CPE acquisition, but still sees Apache's inventory runway in the U.S. as relatively short compared to peers.

The firm's valuation of Apache accounts for approximately $2.5 billion in asset retirement obligations and $743 million ($422 million discounted) in Gulf of Mexico decommissioning liabilities, which it considers a substantial environmental liability for a company of Apache's size.

Under current strip prices, Apache is trading at 3.8 times its 2025 enterprise value to debt-adjusted cash flow (EV/DACF), compared to the large-cap exploration and production (E&P) peer average of 5.2 times. This represents a wider discount than the historical average of approximately 1.0 times versus its peers. The $40 price target from Barclays is based on a blended target multiple of 4 times the estimated 2025 EV/EBITDX and 1 times net asset value (NAV).

InvestingPro Insights

Recent data from InvestingPro highlights Apache Corp's financial metrics and market performance, providing a deeper understanding of the company's current position. The company's market capitalization stands at $12.96 billion, indicating its significant presence in the industry. With a P/E ratio of 4.33 for the last twelve months as of Q1 2023, Apache is trading at a valuation that suggests it may be attractive to investors looking for earnings-based investments.

An InvestingPro Tip worth noting is that Apache has maintained dividend payments for 54 consecutive years, which could appeal to income-focused investors, showcasing the company's commitment to returning value to its shareholders. Additionally, the company has been profitable over the last twelve months, which aligns with analysts' predictions that the company will maintain profitability this year. This is a positive sign for investors looking for stable earnings performance.

The company's stock has also seen a strong return over the last month, with a 13.73% price total return, reflecting recent market confidence. For those interested in further insights and tips, InvestingPro offers additional analysis on Apache Corp, which can be accessed with a special discount using the coupon code PRONEWS24 for an extra 10% off a yearly or biyearly Pro and Pro+ subscription. With several more InvestingPro Tips available, investors can gain a comprehensive understanding of the company's potential risks and opportunities.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.