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APA Corporation (APA - Get Rating) in Houston Tex., explores for
and produces oil and gas properties. It has operations in the United States,
Egypt, and the United Kingdom, and has exploration activities offshore
Suriname. In comparison, Occidental Petroleum Corporation (OXY - Get Rating), which is also based in Houston,
acquires, explores for, and develops oil and gas properties in the United
States, the Middle East, Africa, and Latin America. The company operates
through three segments: Oil and Gas, Chemical and Marketing, and Midstream.
The price of Brent crude has rallied by more
than 60% this year, nearing its three-year high,
fueled by energy crunch fears. Despite the multi-year high prices,
OPEC is firm in its decision to expand its supply gradually rather than raising
the output meaningfully to meet the rebounding demand. Moreover, U.S. shale oil
production is expected to grow at a “modest rate” over the
next 18 months. Record-high gas prices have encouraged a switch to oil for
power generation, further spurring the oil price rally. The price momentum
should bode well for the oil-producing companies APA and OXY.
APA’s shares have gained 41.5% in price over
the past six months, while OXY has gained 35.8%. However, OXY’s 92.9% gains
year-to-date compare with APA’s 72.1% returns. In terms of the past year’s
performance, OXY is the clear winner with 208.6% price gains versus APA’s
152.5%.
Note that APA is one
of the few stocks handpicked currently in the Reitmeister Total Return
portfolio. Learn
more here.
But which stock is a better buy now? Let’s
find out.
Latest Developments
On October 11, APA completed routine flaring
in its U.S. onshore operations, achieving one of its 2021 ESG goals three
months ahead of schedule. This demonstrates the company’s commitment to
emission reduction and achieving its sustainability targets.
In September, APA declared a 6.25 cents per
share regular dividend, up from 2.5 cents per share, payable November 22, 2021.
On an annualized basis, the dividend increased to 25 cents per share, up 150%
from the previous annualized level.
On July 28, OXY declared a regular quarterly
dividend of $0.01 per share on common stock, payable on October 15, 2021, to
stockholders of record as of September 10, 2021.
Also in July, OXY announced its definitive
agreement with an affiliate of Colgate Energy Partners III, LLC. to sell its
non-strategic acreage in the Permian Basin. The company intends to use the
proceeds from the sale to pay down debt.
Recent Financial
Results
APA’s total revenues increased 133.5%
year-over-year to $1.76 billion in its fiscal second quarter, ended June 30.
Its net income attributable to common stock stood at $316 million, up 181.9%
from the same period last year. The company’s EPS increased 180.4%
year-over-year to $0.82. In addition, net cash provided by operating activities
rose 1,053.6% from its year-ago value to $969 million.
For the second quarter, ended June 30, OXY’s
revenues increased 101.9% year-over-year to $6.01 billion. Its income from
continuing operations grew substantially from its negative year-ago value to
$100 million. Its net loss attributable to common stockholders declined 98.8%
from the same period last year to $97 million. The company’s loss per share
decreased 98.9% year-over-year to $0.10.
Past and Expected
Financial Performance
APA’s revenues and EBITDA have declined at
CAGRs of 2.9% and 7.1%, respectively, over the past three years. Analysts
expect APA’s revenue to increase 32.8% in the current quarter, 48.6% in the
current year, and 1.1% in the following year. The company’s EPS is expected to
grow by 2,060% in the current quarter and 418.5% in the current year.
In comparison, OXY’s revenues and EBITDA have
grown at CAGRs of 10.8% and 7.1%, respectively, over the past three years,
respectively. Analysts expect the company’s revenue to increase 87.9% in the
current quarter, 51.2% in the current year, and to decline 1% in the next year.
The company’s EPS is expected to grow 176.9% in the current quarter and 134.8%
in the current year.
Profitability
APA is more profitable, with gross profit and
EBITDA margins of 62.67% and 53.36%, versus OXY’s 56.93% and 42.93%.
Furthermore, APA’s 215.11% ROE compares with
OXY’s negative 21.18%.
Thus, APA is more profitable here.
Valuation
In terms of forward EV/Sales, OXY is
currently trading at 3.06x, which is 8.8% higher than APA’s 2.79x. Also, OXY’s
5.75 forward EV/EBITDA ratio is 26.6% higher than APA’s 4.22.
Thus, APA is relatively affordable here.
POWR Ratings
APA has an overall B rating, which equates to
Buy in our proprietary POWR Ratings system. In contrast,
OXY has an overall rating of C, which translates to Neutral. The POWR Ratings
are calculated by considering 118 different factors, with each factor weighted
to an optimal degree.
APA has a Growth grade of B, consistent with
its stable rise in financials in the latest quarter. In contrast, OXY has a
Growth grade of C, which is in sync with its mixed financials.
Both stocks have A grades for Momentum. This
is justified because they are trading well above their respective 50-day and
200-day moving averages.
Of the 90 stocks in the Energy – Oil & Gas industry,
APA is ranked #2, while OXY is ranked #25.
Beyond what we’ve stated above, we have also
rated the stocks for Stability, Value, Quality, and Sentiments. Click
here to view APA Ratings. Also, get all OXY ratings here.
The Winner
Oil-producing companies have gained
significantly over the past year. Because the OPEC+ consortium has no intention
of increasing supply rapidly, oil prices are expected to remain high in the
near term. Given this backdrop, APA and OXY are expected to perform well.
However, we think its lower valuation and higher profitability make APA the
better choice here.
Our research shows that odds of success
increase when one invests in stocks with an Overall Rating of Strong Buy or
Buy. View all the top-rated stocks in the Energy – Oil & Gas industry here.
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