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On Thursday, CFRA analyst Stewart Glickman adjusted the rating for APA Corp (NASDAQ: APA), shifting from a "Strong Sell" to a "Sell" stance, while maintaining a price target of $19.00. The stock, currently trading near its 52-week low of $20.09, appears undervalued according to InvestingPro analysis. Glickman’s decision comes with an analysis of APA’s financial prospects, including a revised earnings per share (EPS) estimate for 2025 and an initial estimate for 2026.
APA Corp reported a fourth-quarter EPS of $0.79, which fell short of the consensus by $0.16. The company maintains strong fundamentals with a gross profit margin of nearly 70% and trades at an attractive P/E ratio of 3.1x. Despite this, CFRA has increased its 2025 EPS forecast by $0.27, setting it at $3.52, and has introduced a 2026 EPS estimate of $3.34. The firm’s production guidance for 2025 indicates an increase of 3% year-over-year to 396,000 barrels of oil equivalent per day (boe/d), even as it plans to reduce capital expenditure by 17% from the previous year, taking into account spending on Callon (NYSE:CPE) in the first quarter of 2024 prior to its acquisition by APA. Get deeper insights into APA’s financial health and growth potential with InvestingPro, which offers exclusive analysis and 6 additional ProTips.
The rating upgrade reflects several factors, including APA’s cost-saving initiatives and a recent gas price agreement in Egypt that could lead to a turnaround in production volumes. Furthermore, while Suriname is expected to achieve first oil by 2028, near-term catalysts for APA are believed to hinge on cost improvements. Glickman suggests that reaching the production target could prove challenging should oil prices fall below expectations in 2025.
The price target of $19.00 is based on a valuation that includes a projected enterprise value to EBITDA multiple of 2.7 times for the year 2026, which is below APA’s historical forward average but above trough levels. Additionally, the target incorporates a discounted cash flow (DCF) model that assumes a 4% free cash flow growth over the next decade and a terminal growth rate of 2.5%. These financial models underpin CFRA’s outlook on APA’s stock as the company navigates its production and expenditure plans.
In other recent news, APA Corporation reported its fourth-quarter 2024 earnings, which fell short of analysts’ expectations. The company’s adjusted earnings per share came in at $0.79, missing the forecast of $0.9767, while revenues totaled $2.19 billion, below the anticipated $2.28 billion. Despite these misses, APA generated $420 million in free cash flow, marking its highest quarterly free cash flow for 2024. The company also announced a cost-cutting initiative aimed at achieving $350 million in savings by 2027. Additionally, APA is exploring gas infrastructure expansion in Egypt and plans to maintain flat production in the Permian Basin through 2029. In terms of analyst actions, there were no specific upgrades or downgrades noted in the recent developments. Investors and analysts continue to monitor APA’s strategic focus on cost efficiency and its capital budget of $2.5 to $2.6 billion for 2025.
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