On Tuesday, JPMorgan updated its outlook on Apache Corp . (NASDAQ: NASDAQ:APA), increasing the price target to $29.00 from $27.00, while maintaining a Neutral rating on the stock. The revision reflects the firm's expectations of a modest outperformance against consensus estimates for the third quarter of 2024.
The firm forecasts Apache's third-quarter earnings per share (EPS) and cash flow per share (CFPS) at $1.01 and $3.00, respectively, slightly higher than the Street's estimates of $0.95 for EPS and $2.96 for CFPS. The anticipated earnings before interest, taxes, depreciation, amortization, and exploration expenses (EBITDAX) for the quarter stand at $1,487 million, which is 3.5% above the Street estimate of $1,437 million.
A key factor contributing to the positive outlook is the benefits from Apache's marketing agreement with Cheniere (LNG), which allows the company to leverage low Waha gas prices and its 670 million cubic feet per day of takeaway capacity on the Gulf Coast Express (GCX) pipeline. This arrangement is expected to yield a $178 million gain from the market, surpassing the original guidance by $58 million.
Despite operational adjustments due to asset sales and production shut-ins, JPMorgan projects Apache's adjusted third-quarter production volumes at 383 thousand barrels of oil equivalent per day (MBoe/d), including 208 MBoe/d of adjusted oil volumes. This is slightly below the company's guided figure of 388 MBoe/d. The capital expenditures for the quarter are estimated to align with the Street's expectations at $697 million.
For the year 2024, the firm has incorporated these updates into their model, estimating Apache's adjusted production at 385 MBoe/d, with oil volumes at 199 MBoe/d, based on a capital expenditure program of approximately $2.68 billion. With current strip prices, Apache's forecasted free cash flow (FCF) for 2024 stands at $1,022 million, which translates to an approximate 10% FCF yield.
In other recent news, APA Corporation reported Q3 2024 gains including a $3 million realized gain on commodity derivatives and a substantial $178 million gain on natural gas transactions with Cheniere. The company also announced the sale of non-core assets in the Permian Basin for $950 million. APA Corporation and TotalEnergies (EPA:TTEF) have committed to a $10.5 billion investment in Suriname's Block 58 offshore oil project, expected to produce over 750 million barrels of oil starting in 2028.
In response to analyst notes, TD Cowen maintained its Hold rating on Apache Corp, while Truist Securities and Wolfe Research upgraded their price targets, citing operational opportunities in Suriname, the Permian region, and Egypt. However, Mizuho maintained an underperform rating, noting the higher costs of the Suriname project. Apache Corp reported a reduction in natural gas output by 103 million cubic feet per day and a cut in natural gas liquids production, exceeding previous estimates due to pricing adjustments.
InvestingPro Insights
Adding to JPMorgan's analysis, recent InvestingPro data provides further context on Apache Corp.'s financial position. The company's P/E ratio of 2.94 and adjusted P/E ratio of 3.18 for the last twelve months as of Q2 2024 suggest that the stock may be undervalued relative to its earnings. This aligns with JPMorgan's increased price target and the potential for outperformance in Q3 2024.
InvestingPro Tips highlight that Apache has maintained dividend payments for 54 consecutive years, demonstrating a strong commitment to shareholder returns. This is particularly noteworthy given the current dividend yield of 3.75%, which could be attractive to income-focused investors. Additionally, analysts predict the company will remain profitable this year, supporting JPMorgan's positive earnings outlook.
It's worth noting that InvestingPro offers 5 additional tips for APA, providing investors with a more comprehensive analysis of the company's prospects. To gain access to these insights and more detailed financial metrics, consider exploring the full range of data available on InvestingPro.
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