The price of U.S. crude recently rallied to seven-year highs, fueled by the restrained supply from oil-producing countries amid rebounding demand. Oil prices have risen more than 16% since the start of September. Furthermore, high natural gas prices are adding to the oil price spike.

Also driving the rally is OPEC+’s decision to stick to its earlier agreement to increase the worldwide supply by a limited amount, ignoring the heightened demand. The White House has called for more support from oil-producing countries to address the price hike.

The thriving oil industry has attracted immense investor attention of late, causing several energy stocks to become overvalued. However, we think fundamentally sound mid-cap energy stocks APA Corporation (APA), California Resources Corporation (CRC), Whiting Petroleum Corporation (WLL), and Oasis Petroleum Inc. (OAS) still look undervalued at their current price levels. Thus, these stocks could be solid bets now.

APA Corporation (APA)

APA in Houston, Tex., is an oil and gas exploration company in the United States, Egypt’s the Western Desert, and the United Kingdom’s North Sea. The company also operates explorations in Suriname. In 2021, Apache Corporation came under APA in a holding company structure. The company has a market capitalization of $9.23 billion.

On October 11, APA announced that its subsidiary Apache Corporation had reached a key milestone in its sustainability targets three months ahead of its scheduled date. This demonstrates the company’s commitment to achieving its emission control targets.

On September 20, APA raised its quarterly dividend from 2.5 cents per share to 6.25 cents per share, payable on November 22 this year. The increase reflects APA’s strength in core assets and belief in long-term cash-flow generation.

In terms of its forward Price/Cash Flow, APA is currently trading at 2.76x, which is 53.5% lower than the 5.94x industry average. Its 6.83 forward EV/EBIT multiple is 50.2% lower than the 13.72 industry average.

For its second fiscal quarter, ended June 30, APA’s total revenues increased 133.5% year-over-year to $1.76 billion. Its adjusted earnings after tax and adjusted EPS stood at $266 million and $0.70, respectively, up substantially from their negative year-ago value. And its adjusted EBITDAX increased 330.2% year-over-year to $1.01 billion.

The Street’s $0.98 EPS estimate for the current quarter (ending December 2021) reflects a 2,060% year-over-year increase, while the Street’s $1.71 billion revenue estimate for the current quarter indicates a rise of 32.8% from the prior-year quarter. Also, APA has an impressive earnings surprise history; it has topped consensus EPS estimates in each of the trailing four quarters.

APA’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

APA has an A grade for Momentum and Quality, and a B grade for Growth and Value. It is ranked #2 of 90 stocks in the Energy – Oil & Gas industry. To see additional POWR Ratings for Stability and Sentiment for APA, click here.

California Resources Corporation (CRC)

CRC is an independent oil and natural gas company with carbon intensity production in the United States. The Bakersfield, Calif., company explores for, gathers, produces, and processes crude oil, natural gas, and natural gas liquids. It has a market capitalization of $3.31 billion.

The company went public after a financial restructuring on October 28, 2020, canceling its pre-existing debt and emerging with a stronger balance sheet. It established a new revolving credit facility with a $1.2 billion borrowing base.

CRC’s 8.24 forward non-GAAP P/E multiple is 34.6% lower than the 12.61 industry average. And in terms of its forward EV/EBITDA, it is currently trading at 5.17x, which is 36.7% lower than the 8.17x industry average.

In its second fiscal quarter, ended June 30, CRC’s total revenues increased 10.1% year-over-year to $304 million, while its adjusted EBITDAX rose 789.5% from the same period last year to $169 million. Its adjusted net income and adjusted net income per share stood at $78 million and $0.94, respectively, representing a substantial rise from their negative year-ago values.

Analysts expect EPS to increase 11.9% year-over-year to $2.04 billion in the next year (fiscal 2022). The stock has gained more than 150% in price since it went public on October 28.

CRC’s POWR Ratings reflect this promising outlook. The stock has an overall B rating which translates to Buy in our POWR Rating system.

CRC has a Momentum grade of A, and a Value, Sentiment, and Quality grade of B. In the Energy – Oil & Gas industry, it is ranked #8. Click here to see the additional POWR Ratings for CRC (Growth and Stability).

Whiting Petroleum Corporation (WLL)

Denver, Colorado’s WLL operates as an oil and gas company that acquires, develops, and produces crude oil, natural gas, and natural gas liquids and sells them to end-users and other buyers. The company has a $2.44 billion market capitalization.

In September, WLL acquired the leasehold interests and related assets in the Williston Basin of North Dakota. It also closed the divestiture of its Redtail leasehold interests and associated assets in the Denver-Julesburg Basin of Colorado. The addition of 60 drillable locations should bolster the company’s production capacity.

In terms of non-GAAP forward P/E, WLL is currently trading at 5.27x, which is 58.2% lower than the 12.62x industry average. Its 3.69 forward EV/EBITDA multiple is 54.8% lower than the 8.17 industry average. WLL’s total operating revenues increased 283.9% year-over-year to $351.65 million in the second fiscal quarter, ended June 30. This can be attributed to a 282.1% increase from the prior-year quarter in oil, NGL, and natural gas sales to $349.98 million. For the six months ended June 30, its adjusted net income came in at $225.40 million, while its adjusted net income per share stood at $5.80, both up considerably from their negative year-ago values.

A $2.67 consensus EPS estimate for the current quarter (ending December 2021) indicates an 82.9% year-over-year increase. Likewise, the $283.39 million consensus revenue estimate for the current quarter reflects a 33.5% improvement from the same period last year. Furthermore, WLL has an impressive surprise earnings history; it has beaten consensus EPS estimates in three of the trailing four quarters. 

WLL has an overall B rating which equates to Buy in our proprietary POWR rating system. The stock has an A grade for Momentum, and a B grade for Value and Quality. In the 11-stock Energy – Drilling industry, it is ranked #2. Click here to see the additional POWR ratings for Growth, Stability, and Sentiment for WLL.

Oasis Petroleum Inc. (OAS)

OAS is an independent oil and natural gas exploration and production company that is headquartered in Houston, Tex. It operates in two segments:  Exploration and Production (E&P); and Midstream. OAS went public on November 20, 2020 after a financial restructuring. It has a $2.07 billion market capitalization.

On September 30, OAS extended the acquisition date for the Williston Basin assets from Diamondback Energy, Inc. (FANG) subsidiary QEP Energy Company. FANG and OAS expect the transaction to close sometime over the next few weeks and could prove to be a significant addition to OAS’ asset base.

On June 29, OAS closed an offering of Oasis Midstream Partners LP (OMP) common units. Danny Brown, OAS’ Chief Executive Officer, said, “The OMP common unit offering accomplishes the mutually beneficial objectives of increasing OMP’s public ownership and liquidity while highlighting the value of Oasis’s ownership. Oasis will continue to evaluate strategies to increase visibility into its ownership in OMP and close the current sum of the parts discount embedded in its stock price. As Oasis generates significant free cash flow, it remains committed to returning cash to shareholders.”

OAS’ 8.57 forward non-GAAP P/E multiple is 32% lower than the 12.61 industry average. In terms of forward EV/EBIT, it is currently trading at 4.99x, which is 63.6% lower than the 13.72 industry average.

For its second fiscal quarter, ended June 30, OAS’ total revenue increased 136.3% year-over-year to $393.06 million. This can be attributed to a 172% year-over-year increase in oil & gas revenues to $255.23 million. Its net income attributable to OAS and its EPS came in at $73.36 million and $3.52, respectively, up substantially from their negative year-ago values.

The Street’s $18.96 EPS estimate for the next year (fiscal 2022) indicates a 47.8% year-over-year increase, and the Street’s $1.35 billion revenue estimate for the coming year reflects a 12.7% increase from the current year. 

It’s no surprise that OAS has an overall B rating which translates to Buy in our POWR Ratings system. OAS has a Momentum grade of A, and Growth, Value, and Quality grades of B. It is ranked #5 in the Energy – Oil & Gas industry.

In addition to the POWR Rating grades we’ve stated above, one can see OAS ratings for Stability and Sentiment here.

APA shares were trading at $26.82 per share on Friday morning, up $0.60 (+2.29%). Year-to-date, APA has gained 89.83%, versus a 20.22% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...

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