The U.S. energy firm Apache Corporation (APA) reported weak second-quarter results on August 2, 2012, with both revenue and earnings per share declining year over year.
We cover below the results of the recent earnings announcement, subsequent analyst estimate revisions and the Zacks ratings for the short-term and long-term outlook for the stock.
Second Quarter Recap
The quarter’s earnings per share – excluding one-time items – came in at $2.07, well below the Zacks Consensus Estimate of $2.52 and the year-ago period adjusted profit of $3.22.
Quarterly revenues of $3,972.0 million were down 8.4% from the second quarter of 2011 and were also short of our projection of $4,287.0 million.
Agreement of Analysts
Looking at the estimates’ revision trend, it becomes clear that most of the analysts project a pessimistic outlook for Apache through the balance of 2012.
Of the total 20 analysts covering the stock, 11 have lowered its estimate and one analyst has moved in the opposite direction over the last 30 days. In the last 7 days, there was no estimate revision.
For fiscal 2012, 13 analysts (out of 19 covering the stock) have trimmed their estimates in the last 30 days, while only one analyst went for an upward revision. The last 7 days saw a complete dearth of estimate revisions.
The estimate revisions for the upcoming quarter and full-year 2012 indicate that analysts’ sentiment were based on not-so-favorable oil and natural gas environment along with operational disturbances, inflationary cost conditions and geo-political risks.
However, the company’s large geographically-diversified reserve base, its balanced exposure to natural gas and crude oil, and multiyear trends in reserve replacement and production growth factors are expected to partially offset the negative effects.
Magnitude of Estimate Revisions
Reflecting the influence from analysts’ earnings revision, in the last 30 days, the Zacks Consensus Estimate for the third quarter dropped to $2.23 per share from $2.36. Over the past one week, earnings estimate remained unchanged.
For the full year, the earnings estimate moved down to $10.15 from $10.58 per share, over the last 30 days. A week before, the estimate recorded was $10.15.
Earnings Surprise
With respect to earnings surprise, Apache showed mixed trend in the last 4 quarters. The company recorded a minimum surprise of negative 17.9% in the second quarter of 2012 to the maximum of positive 4.6% in the third quarter of 2011. On average, the earnings surprise was a negative 3.4%.
Our Recommendation
We are maintaining our Neutral recommendation on the stock, as we see limited upside over the near term. Apache – which completed the purchase of Exxon Mobil Corporation's (XOM) Beryl Field, together with other properties in the U.K. North Sea earlier this year – currently retains a Zacks #3 Rank (short-term Hold rating).
About Earnings Estimate Scorecard
As a PhD from MIT, Len Zacks proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education/
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