A month has gone by since the last earnings report for Apache (APA - Free Report) . Shares have lost about 0.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Apache due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Second-Quarter 2018 Results
Apache reported reported second-quarter earnings per share – excluding one-time items – of 50 cents, ahead of the Zacks Consensus Estimate of 35 cents and turned around from year-ago adjusted loss of 21 cents. The outperformance stems from higher oil realizations and strong volumes from the key Permian Basin region.
Revenues of $1.9 billion were above the Zacks Consensus Estimate of $1.8 billion and was 39.4% above the second-quarter 2017 sales of $1.4 billion.
Production Growth, Higher Selling Prices
The production of oil and natural gas (excluding divested assets and non-controlling interests) averaged 389,734 oil-equivalent barrels per day (BOE/d) (67% liquids), up 16% from last year. Apache’s production for oil and natural gas liquids (NGLs) was 259,887 barrels per day (Bbl/d), while natural gas output came in at 779,085 thousand cubic feet per day (Mcf/d).
In the company's Permian Basin acreage, average production volumes improved to a record 201,832 BOE/d from 145,533 in the second quarter of 2017. Results were helped by operational progress and the high quality of Apache’s inventory. For 2018, the company forecasts its Permian resources to continue the high-return growth.
The average realized crude oil price during the second quarter was $69.35 per barrel, representing an increase of 47.9% from the year-ago realization of $46.89. However, the average realized natural gas price during the June quarter of 2018 was $2.50 per thousand cubic feet (Mcf), down 3.8% from the year-ago period.
Apache increased its 2018 annual production guidance in the United States to 260,000 BOE/dfrom 250,000-258,000BOE/d, representing year over year volume growth of 26%. The expected improvement in this year’s volume was prompted by robust execution and well performance in the second quarter.
Balance Sheet, Capital Spending & Lease Operating Expenses
As of Jun 30, 2018, the oil giant, with a market capitalization of around $18 billion, had approximately $972 million in cash and cash equivalents. The company had long-term debt of $7.9 billion, representing a debt-to-capitalization ratio of 51.0%.
During the oil rout, Apachealigned its spending plans with the low-price environment.
But Apache has since then increased its capital investment after achieving cost rationalization. With returns-focused growth in mind, Apache shelled out $3.1 billion in 2017, representing a 75% increase over its 2016 spend. Keeping with the company’s planned shift in strategic objective, Apache projects 2018 oil and gas investments of $3.4 billion, up from the prior guidance of $3 billion. The bulk of its capital investments (or 70%) will be allocated toward the Permian Basin.
Apache’s second-quarter lease operating expenses totaled $356 million, down 4.3% from the year-ago quarter. However, total operating expenses increased 3.3% from the corresponding period of 2017 to $1.4 billion.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
At this time, Apache has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is primarily suitable for growth investors while also being suitable for those looking for value and to a lesser degree momentum.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Apache has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.