APA Corp. (APA) — better known by its former name of Apache — is an oil and gas exploration and production company based in Texas, with global operations that also reach to Egypt, and the U.K., notes Ian Wyatt, growth and income expert and editor of Million Dollar Portfolio.
In the United States, it has nearly 6,000 wells covering 3.8 million acres throughout Texas. Two-thirds of Apache’s oil and gas reserves are located in the U.S. And last year’s production exceeded 83 million barrels.
Since 2003 the company has been acquiring offshore oil assets in the North Sea. The company has nearly 500,000 acres and produces 11% of the company’s oil and gas. And for 26 years APA has been operating in Egypt — becoming the country’s largest oil producer.
Shares of the stock have been a solid performer — rising 62% in 2022. That puts the stock ahead of the 51% gain for the Energy Select Sector ETF (XLE). Along with the entire energy sector — APA is benefitting from higher oil and natural gas prices.
The company’s sales are expected to jump 24% this year to hit $9.8 billion. Meanwhile, EPS are expected to soar 117% to reach $8.46 per share. And that means the price-to-earnings multiple is just 5. It also trades at a 50% discount from other major energy stocks. The stock is simply too cheap to ignore.
APA is currently gushing cash and rewarding shareholders. Management has been aggressively returning cash to investors and cleaning up its balance sheet. Since October 2021, Apache has spent $1.4 billion to repurchase its own stock. The average price paid was $31 per share — well below the recent share price.
Plus, APA has paid out $110 million in dividends. And the company has retired $1.5 billion in debt. A total of 76% of the company’s free cash flow has been returned to shareholders via dividends and buybacks.
There are two primary growth opportunities. First, a Suriname offshore project appears to be very promising and could develop into a major oil project in the coming years. Second, APA signed a deal to supply natural gas to Europe and Asia in partnership with Cheniere Energy (LNG). The deal could add $500 million or more in free cash flow.
Neither of these projects appear to be baked into the price of APA. And progress with either project could help unlock value for APA shares in the next year. Even without these projects, APA shares are grossly undervalued today. Based on a P/E multiple of 8-times 2023 EPS of $9.51, my price target for the stock $75 per share.
