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Apache Needs To Demonstrate More Differentiated Growth

Apache Needs To Demonstrate More Differentiated Growth

Goldman Sachs said Apache Corporation (NYSE: APA) needs to show more differentiated growth, but the firm updated its estimates and target price on the stock while maintaining a Neutral rating on the issue.

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 percent in the last year. We are Neutral-rated on APA as at present we do not see differentiated growth/FCF/returns," Singer explained.

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Although the company sees 2016 cash flow neutrality at $35/bbl oil and $2.35/MMBtu Henry Hub natural gas, the analyst does not assume FCF neutrality at those commodity prices. However, Singer noted, "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 21 percent this year.


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