Impending EU sanctions on Russian oil have increased concerns over the energy supply and led to rising oil and natural gas prices. Despite these supply disruptions and reduced demand due to the lockdowns in China, OPEC+ has agreed only to a modest monthly oil output increase.
However, President Biden plans to replenish the Strategic Petroleum Reserve (SPR), the U.S. emergency oil supply, to boost the oil supply and mitigate prices. This should allow domestic companies engaged in the upstream segment to benefit substantially.
APA Corporation (APA) and Antero Resources Corporation (AR) are two prominent oil and gas industry players engaged in the exploration and production/upstream segment. APA is an independent energy company exploring, developing, and producing natural gas, crude oil, and natural gas liquids (NGLs). Its upstream business has exploration and production operations in the U.S., Egypt, and offshore the U.K. in the North Sea. Altus Midstream LP operates its Altus midstream business. On the other hand, AR is an independent oil and natural gas company that acquires, explores, develops, and produces natural gas, natural gas liquids, and oil properties. It had estimated proved reserves of 10.2 trillion cubic feet of natural gas; 718 million barrels of assumed recovered ethane; 501 million barrels of primarily propane, isobutane, normal butane, and natural gasoline; and 36 million barrels of oil.
Year-to-date, APA gained 53% and AR has skyrocketed 113%. Which of these stocks is a better pick now? Let’s find out.
Recent Financial Results
APA’s total revenues for its fiscal 2022 first quarter ended March 31, 2022, increased 62.1% year-over-year to $2.32 billion. The company’s adjusted pre-tax income came in at $1.01 billion for the quarter, indicating a 92.9% rise from the prior-year period. While its adjusted net income increased 93.1% year-over-year to $668 million, its adjusted EPS grew 111% to $1.92.
For its fiscal 2022 first quarter ended March 31, 2022, AR’s total revenue decreased 34.7% year-over-year to $786.84 million. The company’s operating loss came in at $204.60 million, compared to an operating income of $94.54 million in the prior-year period. Its net loss came in at $174.70 million, representing a 1473.3% rise from the year-ago period. AR’s loss per share grew 900% year-over-year to $0.50.
Past and Expected Financial Performance
Over the past three years, APA’s revenue has increased at a CAGR of 2%. APA’s EPS is expected to increase 133.8% year-over-year in fiscal 2022, ending December 31, 2022, and decline 1.4% in fiscal 2023. Its revenue is expected to grow 21.2% in fiscal 2022 and decline 3.9% in fiscal 2023. Analysts expect the company’s EPS to grow at a 24.9% rate per annum over the next five years.
AR’s revenue has increased at a CAGR of 16.9%, respectively, over the past three years. Analysts expect AR’s EPS to grow 300% year-over-year in fiscal 2022, ending December 31, 2022, and 5.6% in fiscal 2023. Its revenue is expected to rise 40.6% year-over-year in fiscal 2022 and decline 1.1% in fiscal 2023. Analysts expect the company’s EPS to fall at a 29.8% rate per annum over the next five years.
Valuation
In terms of non-GAAP forward PEG, AR is currently trading at 0.23x, 156.5% higher than APA’s 0.59x. In terms of forward EV/Sales, APA’s 2.13x compares with AR’s 3.07x.
Profitability
APA’s trailing-12-month revenue is almost 1.2 times AR’s. However, APA is more profitable, with a 55.7% EBITDA margin versus AR’s 7.6%.
Furthermore, APA’s ROE, ROA, and ROTC of 2707.2%, 14.2%, and 22.1% compare with AR’s respective negative values.
POWR Ratings
While APA has an overall B grade, which translates to Buy in our proprietary POWR Ratings system, AR has an overall C grade, equating to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.
In terms of Momentum, both AR and APA have been graded an A, which is in sync with their impressive price gains. AR has gained 128.7% over the past nine months, while AR returned 184.7% over this period.
APA has an A grade for Quality, consistent with its higher-than-industry profitability ratios. APA’s 55.7% trailing-12-month EBITDA margin is 134.4% higher than the 23.8% industry average. AR’s C grade for Quality is in sync with its lower-than-industry profit margins. AR has a 7.6% trailing-12-month EBITDA margin, 68.2% lower than the 23.8% industry average.
Of the 97 stocks in the B-rated Energy - Oil & Gas industry, APA is ranked #18. In contrast, AR is ranked #10 of 15 stocks in the F-rated Energy - Drilling industry.
Beyond what we have stated above, our POWR Ratings system has also graded AR and APA for Sentiment, Stability, Value, and Growth. Get all APA ratings here. Also, click here to see the additional POWR Ratings for AR.
The Winner
High prices and surging demand for upstream activities should benefit APA and AR substantially. However, relatively lower valuation and higher profitability make APA a better buy here.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Ratings of Buy or Strong Buy. Click here to access the top-rated stocks in the Energy - Oil & Gas industry, and here for those in the Energy - Drilling industry.
APA shares were trading at $43.30 per share on Friday afternoon, up $2.00 (+4.84%). Year-to-date, APA has gained 62.11%, versus a -13.66% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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