The geopolitical headwinds have driven energy prices significantly higher this year. Oil prices had crossed $100 per barrel earlier this year, primarily because of Russia’s invasion of Ukraine. 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.

Energy company APA Corporation (APA) has benefited from the higher crude oil prices. The company surpassed consensus EPS and revenue estimates in the last quarter. Its EPS came 12.1% higher than analyst estimates, while its revenue beat the consensus estimate by 23.7%.

Lockdowns in China and a weak global macroeconomic outlook have driven a decline in crude oil prices. However, many analysts expect crude oil prices to bounce back because of the expected increase in demand from China and tight supply.

Oil is expected to be in tight supply due to the European Union embargo on Russian crude imports effective December 5, 2022. Moreover, OPEC+ has already cut production by 2 million barrels per day from last month, with rumors of further production cuts to boost oil prices.

The US Energy Information Administration (EIA), in its November Short-Term Energy Outlook (STEO), revised up the price of brent crude for 2022 to an average of $102.13 per barrel and the West Texas Intermediate (WTI) to $95.88. For 2023, it expects the price of Brent to average $95.33 per barrel and WTI to average $89.33 per barrel.

APA pays a $1 per share dividend annually, which translates to a 2.14% yield on the current price. Its four-year dividend yield is 2.84%. The company paid a quarterly dividend of $0.25 per share on November 22, 2022.

The stock has gained 73.7% in price year-to-date and 85% over the past year to close the last trading session at $46.72. Wall Street analysts expect the stock to hit $55.18 in the next 12 months, indicating a potential upside of 18.1%.

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

Robust Financials

APA’s total revenues increased 40.2% year-over-year to $2.88 billion for the third quarter ended September 30, 2022. Its adjusted EBITDAX increased 45.9% year-over-year to $1.69 billion. The company’s adjusted earnings rose 75% year-over-year to $651 million. In addition, its adjusted EPS increased 101% year-over-year to $1.97.

Favorable Analyst Estimates

APA’s EPS for fiscal 2022 and 2023 is expected to increase 114.2% and 8.8% year-over-year to $8.35 and $9.09. Its EPS for the quarter ending December 31, 2022, is expected to increase 58.1% year-over-year to $2.04. Its revenue for fiscal 2022 is expected to increase 35.2% year-over-year to $10.72 billion.

Higher-than-industry Profitability

In terms of the trailing-12-month gross profit margin, APA’s 67.91% is 66.9% higher than the 40.70% industry average. Likewise, its 58.98% trailing-12-month EBITDA margin is 97.5% higher than the industry average of 29.87%. Furthermore, the stock’s 46.54% trailing-12-month EBIT margin is 142.4% higher than the industry average of 19.20%.

Discounted Valuation

APA’s forward non-GAAP P/E of 5.59x is 27.4% lower than the 7.71x industry average. Its forward EV/EBITDA of 3.08x is 44.3% lower than the 5.54x industry average. Also, the stock's 1.40x forward P/S is 1.6% lower than the 1.38x industry average.

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 an A grade for Quality, consistent with its high profitability.

It has a B grade for Sentiment, in sync with its favorable analyst estimates.

APA is ranked #10 out of 92 stocks in the B-rated Energy – Oil & Gas industry. Click here to access APA’s Growth, Value, Momentum, and Stability ratings.

Bottom Line

APA’s stock is trading above its 50-day and 200-day moving averages of $43.14 and $40.04, respectively, indicating an uptrend. The expected rebound in oil prices should benefit the company.

Given its robust financials, favorable analyst estimates, discounted valuation, and higher profitability, it could be wise to put more money into the stock.

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 also want to consider investing in the following Energy – Oil & Gas stocks with an A (Strong Buy) or B (Buy) rating: PrimeEnergy Resources Corporation (PNRG), PBF Energy Inc. (PBF), and Weatherford International plc (WFRD).

APA shares fell $0.52 (-1.11%) in premarket trading Friday. Year-to-date, APA has gained 74.02%, versus a -14.59% 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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