On Friday, Evercore ISI announced a downgrade for Apache Corp . (NASDAQ: NASDAQ:APA), adjusting its stock rating from Outperform to In Line. The firm also revised Apache's price target, reducing it to $39.00 from the previous figure of $52.00. The revision follows what has been described as a "miserable" first half of 2024 for the company's stock performance.
The downgrade was influenced by several factors impacting Apache Corp. The acquisition of CPE earlier in the year, while initially seen as a positive move for diversification, has not led to the anticipated value increase. Additionally, disappointing performance in Egypt and ongoing challenges in the North Sea have contributed to investor concerns. These issues, combined with international natural gas markets providing less support than expected, have led to a revised outlook.
The firm noted the tolling agreement linked to TTF/JKM that Apache has with merchant LNG exporters has not provided the expected tailwind. Moreover, the decision to move forward with the Suriname project, with hopes for a final investment decision (FID) by late 2024, is seen as a distant event for investors, despite the potential benefits of the project.
Evercore ISI pointed out that while many of the factors affecting the downgrade are reflected in the current stock price, there is a need to "mark to market" in light of the stock's underperformance. The firm suggests that improved results from Apache's drilled and completed wells on CPE acreage and exceeding the second-half guidance for 2024 could enhance the company's credibility, with potential developments expected around the fourth quarter of 2024 or the first half of 2025.
The new price target of $39.00 is based on a 1x multiplier of the firm's updated net asset value for Apache Corp., indicating a conservative valuation approach in line with the stock's recent performance and near-term expectations.
In other recent news, APA Corporation has been under the microscope of various analysts, with ratings ranging from "Overweight" to "Sector Perform".
Wells Fargo (NYSE:WFC) Securities has assigned an Overweight rating with a price target of $52.00, while RBC Capital Markets and The Benchmark Company have given APA Corp. a Sector Perform and Buy rating respectively. Meanwhile, Mizuho Securities and Piper Sandler have maintained an Underperform and Neutral rating on the company's stock, respectively.
In a significant development, APA Corp. has sold its non-core assets in two separate transactions, amassing over $700 million. The company intends to use the proceeds primarily to reduce its near-term borrowings. These transactions are expected to close early in the third quarter of 2024.
Analysts from different firms have expressed varying views on APA Corp.'s future. RBC Capital anticipates the company will improve capital efficiencies by focusing on its Permian assets and by selling non-core assets to address high leverage. On the other hand, Mizuho Securities remains reserved about the company's prospects despite an uptick in asset valuation.
Furthermore, APA Corp.'s international operations expose it to risks such as fluctuating natural gas prices, potential tax changes, and operational challenges. However, Roth MKM analysts note that the company's oil assets have upside potential in the context of higher oil prices, which could lead to strong free cash flow and the ability to return significant capital to shareholders.
These are some of the recent developments that investors should be aware of when considering APA Corp. for their portfolio.
InvestingPro Insights
Amidst the recent downgrade by Evercore ISI, APA Corp. (NASDAQ: APA) has shown resilience in certain financial aspects. According to real-time data from InvestingPro, the company boasts a strong Operating Income Margin of 38.96% for the last twelve months as of Q1 2024, underscoring its ability to manage operations efficiently despite a challenging environment. Additionally, the company's P/E Ratio stands at an attractive 3.18, suggesting that the stock may be undervalued relative to its earnings.
An InvestingPro Tip that stands out for APA Corp. is its impressive track record of maintaining dividend payments for 54 consecutive years, which could be a reassuring signal for income-focused investors, especially with a solid Dividend Yield of 3.5% as of the most recent data. Furthermore, the company's commitment to profitability is highlighted by analysts' predictions that APA will remain profitable this year, a sentiment supported by the company's robust Return on Assets of 21.96%.
Despite the near-term headwinds and stock price volatility, APA Corp.'s fundamentals may offer a silver lining to investors. With the stock trading near its 52-week low and a fair value estimate by InvestingPro at $39.89, which is above the current price of $28.57, there may be potential for upside. Investors looking for more detailed analysis and additional InvestingPro Tips can explore the comprehensive insights available on InvestingPro. For those interested, using the coupon code PRONEWS24 can secure an additional 10% off a yearly or biyearly Pro and Pro+ subscription, providing access to a total of 7 InvestingPro Tips for APA Corp. that could further inform investment decisions.
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