Anadarko Petroleum Corporation (APC)

[OilStockReport]

APC to outperform the market? Thoughts?

Anadarko Petroleum Corporation (APC):

Trading at $69.88 price levels, APC offers an investment opportunity for long term investors. APC’s second quarter results were announced on July 25. The company reported a record liquid sales volume with high margins resulting in massive cash flows. The earning per share was recorded at $1.14 which was above market expectations. Quarterly revenue growth was 45.7% year over year which was higher than industry average growth of 15.5%. BP plc (BP), a direct competitor, reported revenue growth of 37.5%.

APC outperformed in gross margin and trailing twelve month stood at 80.02% against BP and industry average of 13.89% and 62.54% respectively. As far as operating margins are concerned, the industry average stood at -8.45% which is much lower than APC operating margin of 20.11%. Strong revenue growth and better margins justifies the high P/E of 41.50 times.

Given the company’s strong historical performance and future growth prospects we recommend a buy on the stock. Moreover, after the quarterly result announcement by APC, Goldman Sachs upgraded APC from neutral rating to buy with a target price of $100- a potential upside of 43% from current price level. In contrast, Barclays Capital cut their target price from $88 to $80.