APA Corp (APA) Valuation Update - Feb 23

[dan_s]

TipRanks: "This morning Truist Securities analyst Neal Dingmann (rated 5-Stars by TipRanks) lowered the price target on Apache Corp. (NASDAQ: APA) to $59.00 (from $64.00) while maintaining a Buy rating. Five other analysts have updated their prices targets since APA announced Q4 results. Their five price targets range from $36 to $49."

At the time of this post, APA was trading at $30.44. < My current valuation of APA is $48/share, based on a conservative 4X annualized operating cash flow per share forecast of $12/share. APA is free cash flow positive and it has some significant Running Room.

APA reported Q4 results that came in close to my forecast when you remove the $1,640 million reduction in their deferred tax liability. GAAP accounting rules that put big adjustments like this and non-cash mark-to-market gains and losses in a quarter make "Reported Net Income" for most companies a worthless number.

Callon Petroleum (CPE) is going to merge into APA sometime in Q2 2024 in an all-stock transaction. It looks like a very good deal for CPE shareholders, especially if Neal Dingmann's valuation turns out to be accurate. CPE is trading at $31.63 today. CPE shareholders are going to receive 1.0425 shares of APA for each share of CPE they own on the closing date. Getting shares in a much larger company that pays a dividend is a good deal IMO.

From a practical matter it really doesn't matter when an all-stock merger closes, but it will impact Q2 results. CPE's current production is ~101,500 Boepd, which is a big step change for APA that had Q4 2023 production of 414,430 Boepd.

My updated forecast/valuation model for APA has been posted to the EPG website. If you own CPE, I highly recommend that you take the time to review my model. At least look at the Red Box.