APA Corporation (APA) in Houston Tex., explores for and produces oil and gas properties. It has operations in the United States, Egypt, and the United Kingdom, and has exploration activities offshore Suriname. In comparison, Occidental Petroleum Corporation (OXY), which is also based in Houston, acquires, explores for, and develops oil and gas properties in the United States, the Middle East, Africa, and Latin America. The company operates through three segments: Oil and Gas, Chemical and Marketing, and Midstream.
The price of Brent crude has rallied by more than 60% this year, nearing its three-year high, fueled by energy crunch fears. Despite the multi-year high prices, OPEC is firm in its decision to expand its supply gradually rather than raising the output meaningfully to meet the rebounding demand. Moreover, U.S. shale oil production is expected to grow at a “modest rate” over the next 18 months. Record-high gas prices have encouraged a switch to oil for power generation, further spurring the oil price rally. The price momentum should bode well for the oil-producing companies APA and OXY.
APA’s shares have gained 41.5% in price over the past six months, while OXY has gained 35.8%. However, OXY’s 92.9% gains year-to-date compare with APA’s 72.1% returns. In terms of the past year’s performance, OXY is the clear winner with 208.6% price gains versus APA’s 152.5%.
Note that APA is one of the few stocks handpicked currently in the Reitmeister Total Return portfolio. Learn more here.
But which stock is a better buy now? Let’s find out.
Latest Developments
On October 11, APA completed routine flaring in its U.S. onshore operations, achieving one of its 2021 ESG goals three months ahead of schedule. This demonstrates the company’s commitment to emission reduction and achieving its sustainability targets.
In September, APA declared a 6.25 cents per share regular dividend, up from 2.5 cents per share, payable November 22, 2021. On an annualized basis, the dividend increased to 25 cents per share, up 150% from the previous annualized level.
On July 28, OXY declared a regular quarterly dividend of $0.01 per share on common stock, payable on October 15, 2021, to stockholders of record as of September 10, 2021.
Also in July, OXY announced its definitive agreement with an affiliate of Colgate Energy Partners III, LLC. to sell its non-strategic acreage in the Permian Basin. The company intends to use the proceeds from the sale to pay down debt.
Recent Financial Results
APA’s total revenues increased 133.5% year-over-year to $1.76 billion in its fiscal second quarter, ended June 30. Its net income attributable to common stock stood at $316 million, up 181.9% from the same period last year. The company’s EPS increased 180.4% year-over-year to $0.82. In addition, net cash provided by operating activities rose 1,053.6% from its year-ago value to $969 million.
For the second quarter, ended June 30, OXY’s revenues increased 101.9% year-over-year to $6.01 billion. Its income from continuing operations grew substantially from its negative year-ago value to $100 million. Its net loss attributable to common stockholders declined 98.8% from the same period last year to $97 million. The company’s loss per share decreased 98.9% year-over-year to $0.10.
Past and Expected Financial Performance
APA’s revenues and EBITDA have declined at CAGRs of 2.9% and 7.1%, respectively, over the past three years. Analysts expect APA’s revenue to increase 32.8% in the current quarter, 48.6% in the current year, and 1.1% in the following year. The company’s EPS is expected to grow by 2,060% in the current quarter and 418.5% in the current year.
In comparison, OXY’s revenues and EBITDA have grown at CAGRs of 10.8% and 7.1%, respectively, over the past three years, respectively. Analysts expect the company’s revenue to increase 87.9% in the current quarter, 51.2% in the current year, and to decline 1% in the next year. The company’s EPS is expected to grow 176.9% in the current quarter and 134.8% in the current year.
Profitability
APA is more profitable, with gross profit and EBITDA margins of 62.67% and 53.36%, versus OXY’s 56.93% and 42.93%.
Furthermore, APA’s 215.11% ROE compares with OXY’s negative 21.18%.
Thus, APA is more profitable here.
Valuation
In terms of forward EV/Sales, OXY is currently trading at 3.06x, which is 8.8% higher than APA’s 2.79x. Also, OXY’s 5.75 forward EV/EBITDA ratio is 26.6% higher than APA’s 4.22.
Thus, APA is relatively affordable here.
POWR Ratings
APA has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. In contrast, OXY has an overall rating of C, which translates to Neutral. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
APA has a Growth grade of B, consistent with its stable rise in financials in the latest quarter. In contrast, OXY has a Growth grade of C, which is in sync with its mixed financials.
Both stocks have A grades for Momentum. This is justified because they are trading well above their respective 50-day and 200-day moving averages.
Of the 90 stocks in the Energy - Oil & Gas industry, APA is ranked #2, while OXY is ranked #25.
Beyond what we’ve stated above, we have also rated the stocks for Stability, Value, Quality, and Sentiments. Click here to view APA Ratings. Also, get all OXY ratings here.
The Winner
Oil-producing companies have gained significantly over the past year. Because the OPEC+ consortium has no intention of increasing supply rapidly, oil prices are expected to remain high in the near term. Given this backdrop, APA and OXY are expected to perform well. However, we think its lower valuation and higher profitability make APA the better choice here.
Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Energy - Oil & Gas industry here.
OXY shares were trading at $33.37 per share on Tuesday morning, down $0.02 (-0.06%). Year-to-date, OXY has gained 92.99%, versus a 17.42% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.
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