Wells Fargo Downgrades Apache Corp. (APA) to Market Perform

June 6, 2014 6:54 AM EDT
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Price: $62.78 --0%

Rating Summary:
    15 Buy, 27 Hold, 3 Sell

Rating Trend: Down Down

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    Up: 6 | Down: 3 | New: 2
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Wells Fargo downgraded Apache Corp. (NYSE: APA) from Outperform to Market Perform and lowered its valuation range to $95-$105 from $116-$120.

Analyst David Tamero comments, "We are downgrading Apache as we prefer other names within the large cap space, which would include EOG, APC and DVN (with DVN being upgraded earlier this week). In our opinion, from a share price perspective, Apache has taken the right steps in cleaning up its portfolio, re-allocating capital, and buying back shares. However, while the stated absolute growth percentages are similar to its peers, Apache debt adjusted cash flow (2015E: 10% vs. 12%) and production per debt-adjusted share metrics (2015E: 1% vs.9%) lag the rest of our large cap universe."

He added, "The risk to our downgrade is 2-fold: 1) Apache divests itself of Kitimat, thereby removing the capital commitment. We think this is likely sooner rather than later, and it would remove an overhang on the shares. The shares could move higher on that. 2) Apache begins to consistently hit its quarterly numbers. The company has been plagued by a number of one-off events over the past few years, but missing quarterly production reinforces a Street perception that Apache can’t execute as well as others. While we think that perception is misguided, it is the perception. And the only way to remove that perception is to hit numbers. Admittedly, of the names we are downgrading, this is the change we feel the least confident about given low expectations and laggard performance.

For an analyst ratings summary and ratings history on Apache Corp. click here. For more ratings news on Apache Corp. click here.

Shares of Apache Corp. closed at $93.17 yesterday.

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