The geopolitical headwinds have driven energy prices significantly higher this year. Oil prices had crossed $100 per barrel as Russia locked horns with Ukraine. Later, oil prices rose to over $120 per barrel at one stage when the United States and its western allies imposed sanctions on Russia, the third largest oil producer in the world.

Although energy prices are down from their highs earlier this year due to global recession fears and a strong dollar, OPEC+ recently announced that it had agreed on steep oil production cuts. OPEC+ reported its decision to cut oil production by 2 million barrels/day, citing rising interest rates and a weak global economy.

This is expected to send oil prices soaring by the end of the year as the supply was already tight. JPMorgan expects the price of Brent crude to hit $100/barrel soon.

Energy company APA Corporation’s (APA) forward non-GAAP P/E of 5x is 35.7% lower than the 7.78x industry average. Its forward EV/EBITDA of 2.87x is 48.8% lower than the 5.60x industry average. Also, the stock's 1.27x forward P/S is 9.7% lower than the 1.41x industry average.

Shares of the producer of natural gas, crude oil, and natural gas liquids (NGLs) saw an unusual options activity lately, with traders buying 961 call options on October 19, indicating bullish investor sentiment. Moreover, Wall Street analysts expect the stock to hit $53.50 in the next 12 months, indicating a potential upside of 27.6%.

APA’s shares have gained 55.9% in price year-to-date and 56% over the past year to close the last trading session at $41.91.

Here’s what could influence APA’s performance in the upcoming months:

Robust Financials

APA’s total revenues increased 71.3% year-over-year to $3.05 billion for the second quarter ended June 30, 2022. Its adjusted EBITDAX increased 93.6% year-over-year to $1.96 billion. The company’s adjusted earnings increased 204.9% year-over-year to $811 million. In addition, its adjusted EPS increased 238.6% year-over-year to $2.37.

Favorable Analyst Estimates

APA’s EPS for fiscal 2022 and 2023 is expected to increase 114.7% and 14.7% year-over-year to $8.38 and $9.61. Its revenue for fiscal 2022 is expected to increase 35.4% year-over-year to $10.73 billion.

Higher-than-industry Profitability

In terms of the trailing-12-month gross profit margin, APA’s 70.89% is 78% higher than the 39.83% industry average. Likewise, its 63.18% trailing-12-month EBITDA margin is 145.4% higher than the industry average of 25.75%. Furthermore, the stock’s 50.94% trailing-12-month EBIT margin is 250.4% higher than the industry average of 14.54%.

POWR Ratings Show Promise

APA has an overall rating of B, equating to a Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. APA has a B grade for Value, consistent with its discounted valuation.

It has an A grade for Quality, in sync with its higher-than-industry profitability. Its robust financials and favorable analyst estimates justify its B grade for Growth.

APA is ranked #12 out of 94 stocks in the B-rated Energy – Oil & Gas industry. Click here to access APA’s ratings for Momentum, Stability, and Sentiment.

Bottom Line

Traders seem bullish on APA’s prospects, as many call options were bought recently. The stock is trading above its 50-day and 200-day moving averages of $38.08 and $37.93, indicating an uptrend. Moreover, Wall Street analysts expect a more than 25% upside in the stock.

Given its robust financials, favorable analyst estimates, discounted valuation, and higher profitability, it could be wise to invest in the stock now.

How Does APA Corporation (APA) Stack Up Against its Peers?

APA has an overall POWR Rating of B, equating to a Buy rating. You might want to consider investing in the following Energy – Oil & Gas stocks with an A (Strong Buy) or B (Buy) rating: Whitecap Resources Inc. (SPGYF), PBF Energy Inc. (PBF), and Weatherford International plc (WFRD).

APA shares were trading at $42.15 per share on Thursday morning, up $0.24 (+0.57%). Year-to-date, APA has gained 58.37%, versus a -21.49% rise in the benchmark S&P 500 index during the same period.

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.

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