Apache Corp. (IL/A): Reinstating view with IL rating; execution on recent acquisitions, improved sentiment on conventional assets key to narrowing valuation discount - Goldman Sachs - May 15, 2006
After a period of being Not Rated, we are reinstating our view of Apache Corp. (APA) with an In-Line rating relative to an Attractive coverage view. We consider Apache a well-managed E&P company whose shares have lagged other large-cap E&Ps over the past 12-18 months, creating a significant valuation discount of 4.1X 2007E EV/DACF versus the 5.0X peer group average. We attribute this underperformance to the Street's current preference for E&Ps with meaningful exposure to "unconventional" natural gas production onshore North America and/or to the Canadian oil sands. We believe APA shares can trade closer to parity with other large-cap E&Ps given its strong profitability and competitive estimated production growth, but see even more favorable risk/reward at this time in our Outperform- rated top picks and In Line-rated Anadarko Petroleum, which also trades at a discount to peers. For more detail on our view of Apache, see our two recent notes, "Execution on recent acquisitions, confidence in Gulf of Mexico key to closing valuation gap" (published April 26, 2006) and "GOM acquisition highlights disciplined, returns focused management" Message 22375858 (published April 19, 2006).
I, Arjun Murti, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. |
