Apache Corporation Valuation – January 2016 Update $APA

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor - November 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Apache Corporation (APA) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Apache Corporation (Apache) is an independent energy company, which explores for, develops, and produces natural gas, crude oil, and natural gas liquids. As of December 31, 2014, Apache had exploration and production interests in five countries: the United States, Canada, Egypt, Australia and the United Kingdom. During the year ended December 31, 2014, it participated in drilling 1,478 gross wells, with 1,407 (95%) completed as producers. As of December 31, 2013, in addition to its completed wells, several wells had not reached completion: 318 gross (214.7 net) in the United States; 27 gross (19.0 net) in Canada; 35 gross (32.5 net) in Egypt, and 3 gross (2.2 net) in the North Sea. The Company’s operations in United States and Canada are constituted under its North America business, while its International business constitutes its operations in Egypt, Australia and the United Kingdom in the North Sea.


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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.


Downloadable PDF version of this valuation:

ModernGraham Valuation of APA

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $15,347,380,018 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.88 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -384.16% Fail
6. Moderate PEmg Ratio PEmg < 20 -2.74 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.64 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.88 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 4.59 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

APA value chart January 2016

EPSmg -$15.54
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Value based on 3% Growth -$225.31
MG Value based on 0% Growth -$132.08
Market Implied Growth Rate -5.62%
Current Price $42.54
% of Intrinsic Value N/A

Apache Corporation does not qualify for either the Enterprising Investor or the more conservative Defensive Investor.  The Defensive Investor is concerned with the low current ratio, the insufficient earnings growth or stability over the last ten years, and the high PEmg and PB ratios.  The Enterprising Investor is concerned by the level of debt relative to the net current assets, and the lack of earnings stability or growth over the last five years.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities at this time or proceed with a cautious speculative attitude.

As for a valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) decline from $6.74 in 2011 to an estimated loss of $15.54 for 2015.  This level of negative EPSmg does not support a positive valuation.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Apache Corporation (APA)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

APA charts January 2016

Net Current Asset Value (NCAV) -$36.84
Graham Number #NUM!
PEmg -2.74
Current Ratio 1.88
PB Ratio 1.64
Dividend Yield 2.35%
Number of Consecutive Years of Dividend Growth 4



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Most Recent Balance Sheet Figures

Balance Sheet Information Sep2015
Total Current Assets $4,079,000,000
Total Current Liabilities $2,167,000,000
Long-Term Debt $8,777,000,000
Total Assets $27,812,000,000
Intangible Assets $0
Total Liabilities $18,003,000,000
Shares Outstanding (Diluted Average) 378,000,000

Earnings Per Share History

Next Fiscal Year Estimate -$42.93
Dec2014 -$14.06
Dec2013 $5.50
Dec2012 $4.92
Dec2011 $11.47
Dec2010 $8.46
Dec2009 -$0.87
Dec2008 $2.09
Dec2007 $8.39
Dec2006 $7.64
Dec2005 $7.84
Dec2004 $5.03
Dec2003 $3.43
Dec2002 $1.80
Dec2001 $2.25
Dec2000 $2.46
Dec1999 $0.75
Dec1998 -$0.58
Dec1997 $0.71
Dec1996 $0.60

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate -$15.54
Dec2014 -$0.14
Dec2013 $6.51
Dec2012 $6.41
Dec2011 $6.74
Dec2010 $4.63
Dec2009 $3.49
Dec2008 $5.84
Dec2007 $7.30
Dec2006 $6.22
Dec2005 $5.03
Dec2004 $3.42
Dec2003 $2.45
Dec2002 $1.75
Dec2001 $1.53
Dec2000 $1.04
Dec1999 $0.32

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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