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TheStreet Open House

Will Apache (APA) Stock React Positively To Major Oil Discovery Off Australia?

NEW YORK (TheStreet) -- Apache Corp.  (APA) , the Houston-based oil producer considering plans to sell international assets because of investor pressure, announced the largest discovery in 20 years off the coast of Western Australia, Bloomberg reported.

The Canning Basin may hold as many as 300 million barrels of oil, the company said today. Apache holds a 40%  stake in the area that includes the Phoenix South-1 well. 

"This discovery should help increase the attractiveness of the international portfolio to potential buyers," according to Capital One Southcoast. The discovery should increase Apache's value by $2 a share, the firm said.

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Apache last month announced it will sell its stake in two natural gas export projects, including one in Australia, and consider a sale or separation of international assets. The announcement came after Jana Partners LLC, a New York-based hedge fund, disclosed a $1 billion stake in the company and said it was pushing for a split to free up cash for share buybacks and reduce spending risks , according to Bloomberg.

Shares of Apache closed down -0.18% to $98.50.

TheStreet Ratings team rates APACHE CORP as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate APACHE CORP (APA) a BUY. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, expanding profit margins and solid stock price performance. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • APACHE CORP's earnings per share declined by 48.4% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, APACHE CORP increased its bottom line by earning $5.63 versus $4.91 in the prior year. This year, the market expects an improvement in earnings ($6.75 versus $5.63).
  • APA's debt-to-equity ratio is very low at 0.30 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.81 is somewhat weak and could be cause for future problems.
  • The gross profit margin for APACHE CORP is currently very high, coming in at 71.33%. Regardless of APA's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, APA's net profit margin of 13.61% compares favorably to the industry average.
  • APA, with its decline in revenue, slightly underperformed the industry average of 2.6%. Since the same quarter one year prior, revenues slightly dropped by 7.3%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period, despite the company's weak earnings results. The stock's price rise over the last year has driven it to a level which is somewhat expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
  • You can view the full analysis from the report here: APA Ratings Report
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