On Tuesday, Mizuho Securities adjusted its outlook on Apache Corp . (NASDAQ: NASDAQ:APA) shares, increasing the price target to $35 from the previous $34, while maintaining an Underperform rating on the stock.
The firm acknowledged the positive market reaction to the valuation of Apache's non-core assets, which are primarily gas and natural gas liquids (NGL)-weighted.
This revaluation comes as a notable point of interest, given that Apache's performance has notably trailed that of its peers, with a year-to-date (YTD) decline of 14% compared to the positive 12% seen by the benchmark S&P Oil & Gas Exploration & Production Select Industry Index (XOP).
The analyst noted the unexpected nature of the valuation for Apache's non-core assets, suggesting that this could lead to a favorable response from investors.
Despite this, the firm holds a cautious stance on Apache's ability to execute post-Centennial Resource Development (CPE) transactions, referencing an earlier outlook this month that did not meet expectations.
Mizuho Securities cited Apache's premium valuation relative to its large-cap exploration and production (E&P) peers as a reason for their continued Underperform rating.
The valuation metrics in question include the company's free cash flow to enterprise value (FCF/EV) and free cash flow to market capitalization (FCF/market cap) ratios.
While the price target has been modestly increased, the firm's position reflects a belief that there are more attractive investment opportunities with higher potential for upside within the sector. This perspective is grounded in comparative analysis and the current market dynamics.
In summary, while Apache has seen an uptick in asset valuation, Mizuho Securities remains reserved about the company's prospects and suggests that investors may find better growth potential in other stocks within the industry.
InvestingPro Insights
As Apache Corp. (NASDAQ: APA) navigates a challenging market landscape, real-time data from InvestingPro offers additional context for investors considering the company's stock. With a market capitalization of $11.47 billion and a notably low P/E ratio of 3.44, which adjusts to 3.9 over the last twelve months as of Q1 2024, Apache presents a mixed financial picture. The company's price/book ratio stands at 4.4, indicating a premium valuation when compared to some industry norms.
InvestingPro Tips highlight that Apache has maintained dividend payments for an impressive 54 consecutive years, and analysts predict the company will remain profitable this year, which may appeal to income-focused investors. However, with 10 analysts revising their earnings downwards for the upcoming period, there is an evident caution in the market sentiment. Additionally, despite trading near its 52-week low, Apache's stock price movements have been quite volatile.
For investors seeking a deeper analysis, InvestingPro provides numerous additional tips on Apache Corp., which can be accessed at https://www.investing.com/pro/APA. With this information, investors can make more informed decisions, and those interested in a subscription can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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