Why Is Apache (APA) Up 5.8% Since Last Earnings Report?

It has been about a month since the last earnings report for Apache (APA). Shares have added about 5.8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Apache due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Apache Q4 Earnings Beat Estimates, Sales Miss

Apache reported fourth-quarter earnings per share – excluding one-time items – of 31 cents, ahead of the Zacks Consensus Estimate of 25 cents. The outperformance stems from strong growth in production from the key Permian Basin region.

However, Apache’s bottom line witnessed a fall from the year-ago quarter’s adjusted profit of 33 cents on lower natural gas realizations.

Revenues of $1.8 billion were 1.9% below the Zacks Consensus Estimate but was 11.3% higher than the fourth-quarter 2017 sales of $1.6 billion.

Production, Selling Prices

The production of oil and natural gas averaged 482,298 oil-equivalent barrels per day (BOE/d) (64% liquids), up 9.6% from last year. The U.S. output (accounting for 59% of the total) rose 28% year over year to 283,464 BOE/d while the company’s international operations decreased 9% to 198,834 BOE/d. Apache’s production for oil and natural gas liquids (NGLs) was 310,749 barrels per day (Bbl/d), while natural gas output came in at 1,029,293 thousand cubic feet per day (Mcf/d).

In the company's Permian Basin acreage, average production volumes improved to 235,936 BOE/d from 176,969 in the fourth quarter of 2017. Results were helped by operational progress and the continued ramp up at the company’s Alpine High discovery.

The average realized crude oil price during the fourth quarter was $58.37 per barrel, unchanged from the year-ago realization. Meanwhile, the average realized natural gas price during the December quarter of 2018 was $2.57 per thousand cubic feet (Mcf), down 11.4% from the year-ago period.

Proved Reserves

Apache announced a 5% increase in proved reserves at year-end 2018 to 1.23 billion oil-equivalent barrels, replacing 135% of 2018 production. The reserve additions were driven by extensions, partially offset by production and downward revisions.

Financial Position

As of Dec 31, 2018, the oil giant, with a market capitalization of around $13 billion, had approximately $714 million in cash and cash equivalents. The company had long-term debt of $8.1 billion, representing a debt-to-capitalization ratio of 53%.

Apache’s fourth-quarter lease operating expenses totaled $352 million, up 8.3% from the year-ago quarter. Moreover, total operating expenses jumped 61.2% from the corresponding period of 2017 to $2.1 billion. This was mainly on account of costs related to asset impairment.

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During the quarter under review, Apache generated $1 billion of cash from operating activities while shelling out roughly $1.1 billion on capital expenditures for negative free cash flow.

Guidance

Apache reiterated that it will shell out 22% less in 2019, expecting capital spending of $2.4 billion. The company also maintained its 6-10% worldwide production exit rate growth in 2019, 12-16% in the U.S. and 5% in the Permian Basin. Meanwhile, Apache raised the low end of its full-year 2019 production guidance to 425,000-440,000 BOE/d from the earlier range of 410,000-440,000 BOE/d. The expected improvement in this year’s volume was prompted by robust execution and well performance in the fourth quarter.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 871.43% due to these changes.

VGM Scores

Currently, Apache has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Apache has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Original post

Written By: Zacks Investment Research