On Jan 22, 2015, we issued an updated research report on U.S. energy firm Apache Corp (APA). Being a firm in the exploration and production industry, Apache’s profitability is expected to take a beating in this weakly priced oil and gas market. This is reflected in the company’s current Zacks Rank #5 (Strong Sell), which implies that the stock is expected to significantly underperform the broader U.S. equity market over the next one to three months.
Crude prices have fallen over 50% since last June when it was trading around the $100 per barrel mark. Apache, being engaged in upstream activities, is directly exposed to the commodity. Reduced prices are expected to significantly impact the company’s revenues, earnings and cash flow. Moreover, as the company derives the bulk of its production from crude oil, it is likely to suffer in the upcoming quarters as the commodity is not expected to see any dramatic improvement in the next few months.
Apache recently announced the sale of its stake in Wheatstone LNG and Kitimat LNG projects. The move was to tackle the pricing woes through cost containment. Though it would help the company’s financials in the near term, it may result in an opportunity loss for Apache in the long term as LNG demand is likely to see a boost in the coming years.
Furthermore, the company’s long-term production and reserve growth primarily depends on its acquire-and-exploit model. Apache may find it difficult to complete accretive transactions in the future, which could negatively impact its growth rate.
Stocks to Consider
Better-ranked players in the energy sector include Cheniere Energy Partners LP (CQP), Spectra Energy Partners LP (SEP) and Golar LNG Partners LP (GMLP). All the stocks sport a Zacks Rank #1 (Strong Buy).
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