Key Points
- Energy stocks are hot-ticket items right now.
- APA Corporation stock earns analysts'"buy" rating.
- Can Ovintiv Inc. or Chesapeake Energy Co. match up to APA?
Energy stocks continue to heat up. This is definitely the case with oil and gas operations company APA Corporation (NASDAQ: APA), which analysts have recently given a "buy" rating, though the average recommendation for this stock has recently been "overweight."
The "buy" rating comes with a median price target of $52.50. Analysts have landed on this estimate within the $38 to $75 range. APA Corp's previous report was $42.52, which is nearly twice the value of the stock around one year ago when it landed at $24.42. This may not be the best performance APA Corporation stock has seen all year but it is currently on a strong upward climb. After all, last year's price was near the 52-week range bottom of $22.96, while the new price target hopes to best the top of last year's range ($51.92). The company's next reporting date is November 3.
Earnings Reflect Stable Momentum Coming Out of the Pandemic
The stock value has nearly doubled since last year but earnings per share (EPS) are down about 50% annually. EPS for the current quarter is $2.19 on $2.5 billion in sales, while EPS one year ago was up around $4. Energy has been among the most dramatically fluctuating industries over the past few years, which becomes clear with a look at quarterly earnings.
For example, the consensus EPS estimate for Q3 2021 was $0.93, in the middle of the $0.61 to $1.17 range. The actual earnings of $0.98 beat the estimate. The following quarter, analysts expected APA to perform better, offering a Q4 forecast range of $0.87 to $1.67 with a consensus estimate of $1.46. Unfortunately, actual earnings came in at only $1.29 for the end of the fiscal year.
The first quarter of 2022 had similar results. Analysts had forecast an EPS range of $1.09 to $3.42 with consensus estimate of $2.20. Actual earnings were a bit of a disappointment at only $1.92. By the second quarter of the year, however, earnings picked up again as the $2.37 actual earnings beat the estimate but were still well inside the range.
On an annual basis, earnings better reflect the tumultuous trials of the pandemic. Between 2018 and 2021, annual earnings fluctuated between -$1.06 and $3.90, which is where the stock closed out last year. While this is easily the highest annual earnings value in several years, it still did not beat the consensus estimate, which was $4.05. It was only slightly above the low range value of $3.90.
Is APA More Favorable than Ovintiv Inc.?
Although the fact sheet might appear that APA has struggled, many seem to believe that it outperforms its nearest competitors, including Ovintiv Inc. (NYSE: OVV), though Ovintiv may be underperforming as well.
Ovintiv has a beta of 2.89 and a share price 189% more volatile than the S&P 500. APA has a beta of of 3.65 and its share price is 265% more volatile than the S&P 500, which implies that APA is a riskier stock (when compared against the S&P 500). On the other hand, Ovintiv has a smaller net margin (22.42%) than APA (32.57%) but a bigger return on assets (20.61% vs. 17.83%) while APA's return on equity (ROE) is ten times higher than Ovintiv (622.55% vs. 61.17%).
Still, Ovintiv has a consensus target of $70.29, which suggests a potential upside of more than 31.5% against APA's potential upside of about 28%. Since Ovintiv has the bigger potential upside, it's more favorable, at least for now.
Is APA More Affordable than Chesapeake Energy Co.?
Chesapeake Energy Co. (NASDAQ: CHK), another close APA competitor, has a 10.1% upside and a "moderate buy" rating. At $97.63, the stock value hovers near the 52-week high ($105.93) with a bottom range of $56.75.
That might seem impressive by comparison, but APA has a net margin of 32.57%, while Chesapeake Energy's net margin is only 18.53%. More importantly, APA's ROE of 622.55% bests Chesapeake Energy's 35.01% by an even larger margin compared to Ovintiv. APA has both a higher upside and stronger consensus rating, which is why analysts tend to favor APA over Chesapeake Energy.
As analysts regard APA as more favorable than Ovintiv, they also feel it is more affordable than Chesapeake because Chesapeake share price is 23% less volatile than the S&P 500. This is closer to — but still less risky than — APA's 28%. APA trades at a lower P/E so it is generally considered a more affordable and safer stock than Chesapeake.
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