Apache Corp: Zacks’ Bear of the Day Play

On January 20th Apache Corp’s (APAAnalyst Report) CEO Steven Farris retired, and promoted former EVP John Christmann IV to the post.  Further, management announced a week prior to Mr. Farris’s retirement, that they would be cutting 5% of its staff (about 250 employees). Moreover, in late December, the company sold its stake in two international LNG projects for $2.75 billion to Woodside Petroleum.

 

While we applaud the board for appointing John Christmann IV to the post of CEO, we do not believe the cost containment strategy of selling assets and cutting staff will slow the negative impact of falling oil prices over the very near term.  This was further exasperated by Goldman Sachs Group trimming their projected oil price in Q2 15 from $70 per barrel to $40.50 a barrel last week.  This only puts further pressure on companies like Apache who were looking forward to oil price increases starting in Q2 15.

Falling Estimates

Due to the declining oil prices, and volume pressures, Apache has seen its Zacks Consensus Earnings Estimates decline over the past 90 days for Q4 14, FY 14, Q1 15, and FY 15.  Further, analysts have continued to downgrade Apache each month for the past three months.  Specifically, Q4 14 declined from $1.26 to $0.83, FY 14 dropped from $6.12 to $5.65, Q1 15 fell from $1.14 to $0.13, and FY 15 plummeted from $5.22 to $1.30.

The table below shows the Price and Consensus Estimates.  As you can see future estimates are showing a strong price decline.

Meeting Price Targets

Apache has a checkered past of beating the Zacks Consensus Earnings Estimates, only beating estimates once in the past four quarters.  The company has posted an average negative earnings surprise of -0.68% during this time frame, showing that they tend to just miss the estimate.  Further with the continued pressure on oil, and a history of just missing estimates, Apache will have a difficult time meeting expectations when they announce their next earnings report on February 12th.

Other Stocks to Consider

The US Exploration and Production oil segment is a minefield of problems lately, and there are very few bright spots in the industry at this point in time.  But if you are inclined to look to invest in the segment, Zacks would suggest; Midstates Petroleum (MPOSnapshot Report), Sabine Oil & Gas (SOGCAnalyst Report), and Vanguard Natural Resources (VNRSnapshot Report), all currently carrying a Zacks Rank #2 (Buy).

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