Apache Needs To Demonstrate More Differentiated Growth

Goldman Sachs said Apache Corporation

need to show more differentiated growth while updating its estimates and target price on the stock. Analyst Brian Singer narrowed his loss estimate for 2016 to -$0.71 from -$2.34. The analyst also raised his price target on the stock by $1 to $53. "APA benefits from FCF from international operations, which along with low leverage has helped shares outperform the EPX by 23% in the last year. We are Neutral-rated on APA as at present we do not see differentiated growth/FCF/returns," Singer wrote in a note. Though the company sees cash flow neutrality in 2016 at $35/bbl oil and $2.35/MMBtu Henry Hub natural gas, the analyst does not assume FCF neutrality at these commodity prices. However, Singer noted that "APA's ability to generate positive FCF will be key for credit to shares." For the first quarter, Apache reported adj. EPS/EBITDA of -$0.40/$503 million versus Goldman estimate of -$0.78/$510 million, and consensus' -$0.89/$454 million. The company increased its 2016 production outlook for North American onshore by 2 percent on improving Permian well productivity. "Continued Permian execution will be crucial to how the Street views APA's asset quality vs. multiple pure-play and diversified E&Ps with strong Permian positions," Singer added. Shares of Apache closed Friday's regular trading session at $53.84. The stock has gained 20 percent this year.