As a result, APA's p/e is down to about 15. A p/e of 15 may not seem that cheap, but given Apache's upside potential -- it is. Look for Apache to continue to achieve solid growth through internal investment and acquisitions. Apache has several key exploration discoveries set to enter development stage and will drill nine wells in Canada this winter as part of its oil shale operations.
Overall, analysts see Apache's oil and gas volumes increasing about 10%-12% in 2007 and 2008. Even better: the company believes it can generate double-digit production growth for the next decade. The Reuters F2007/F2008 EPS consensus estimates for APA are $7.54/$8.84.
The risks? The usual qualifiers for an oil play. Apache is dependent on a decent market price for oil, adequate reserve replacement, and geopolitical stability. To be sure, APA is not a low-risk play, but with secular trends in its favor and the company's demonstrated ability to achieve production results, the risk/reward ratio is favorable.
And let's face it: the current economic environment is largely structured by oil's price, so it makes a great deal of sense, if you can tolerate the risk, to 'own an oil.'
The First Call mean rating for APA is: Buy. [30 firms.] Mean 2007 target: $102.90. [high: $120, low: $80.]
Stock Analysis: Apache is a moderate-risk stock not suitable for low-risk investors. Don't buy APA if your portfolio already contains an adequate percentage of oil/gas or oil/gas services stocks. Investors with an investment horizon longer than 1 year should be rewarded from APA's shares. Sell/Stop Loss if you were to buy this stock: $64.
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