Ken Griffin is Betting Heavily on Apache Corp. (APA)

In this article, we will look into Griffin's greatest bet in the quarter: Apache Corp. (APA). The $14.99 billion market cap company is a large independent exploration and production company that develops and produces natural gas, crude oil and natural gas liquids.

In Apache Corp, Ken Griffin´s Citadel Investment Group holds 2.07 million shares, valued at $119.6 in the second quarter. The stake was incremented by 106% from the previous quarter. It is important to mention that the stock lost almost 5% during the April-June period.

Divestitures

The company has operations in the U.S., Canada, Egypt and the United Kingdom.

However, it has divested operations in the Gulf of Mexico and also in Egypt. Moreover, divestitures are expanding to other countries, such as Australia and Canada, in its liquefied natural gas projects. Despite this, the extra funds can deploy into its U.S. properties, where exploratory activities are crucial for the upcoming future.

Returning Value

The oil and gas company has a good track returning value to shareholders. Dividends have been paid since 1965, and it has recently declared $0.25 regular cash dividends on the company's common shares.

Revenues, Margins, and Profitability

Revenues decreased by 43.8% and led earnings per share decreased in the second quarter compared to the same quarter a year ago ($1.17 vs. $12.89). During the past fiscal year, the company reported -$13.46 versus $5.95 in the previous year. This year, Wall Street expects an improvement in earnings (-$0.79 versus -$13.46).

As a consequence of weak earnings results, the stock is trading lower as we are going to see later.

Finally, let´s compare the best measure of performance for a firm's management: the return on equity. The ROE is useful for comparing the profitability of a company to that of other firms in the same industry.


TickerCompanyROE (%)
APAApache-121.89
BPBP PLC-5.46
APCAnadarko Petroleum-13.60
XOMExxon Mobil13.51
Industry Median64.92

The company has a current negative ROE which is lower than the one exhibit by BP PLC (BP), Anadarko Petroleum (APC) and Exxon Mobil (XOM). Since September 2014, the ROE has dramatically decreased and this is a negative signal for investors.

Relative Valuation

In terms of valuation, the stock sells at a forward P/E of 62.89 (trailing P/E has no sense due to negative earnings). To use another metric, its price-to-book ratio of 0.96x indicates a premium versus the industry average of 0.75x while the price-to-sales ratio of 1.43x is above the industry average of 1.45x, and it is close to 10-year low of 1.39.

The stock price has a downward trend in the five-year period and it has reported a downward trend of EPS over the past two years.

Final Comment

As outlined in the article, the company can see interesting growth opportunities, but it has planned to streamline its asset base by divesting non-core assets. Despite this, another investor of the company is William B. Gray, who has increased his position by 15% to 11.89 million shares, valued at $685.22 million, held as of the end of the Q2 2015. Further, his position represents 5.21% of his total portfolio.

Published on Sep 25, 2015
By Omar Venerio
Capital Markets, Derivatives and Financial Management Professor, Master in Finance and CFA candidate. I am an independent trader of stocks and options and passionate about the stock market.

Copyrighted 2016. Content published with author's permission.

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