Apache Corporation - Making Holes

Apache Corporation
Apache Corporation is an independent energy company that explores for, develops, and produces natural gas, crude oil, and natural gas liquids. Industry peers include Anadarko Petroleum Corporation, BP plc, and Exxon Mobil Corporation.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $41.89, with an initial trailing stop at $40.18. Upward price movement will encounter resistance at $41.47 and $42.68, with final resistance at $45.16, while downward price movement will find support at $39.55 and $37.62 with final support at $35.96.

The Tax Act
The Tax Cuts and Jobs Act of 2017 makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time deemed repatriation transition tax (the “Transition Tax”) on certain earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how AMT credits can be realized; (6) capital expensing; (7) eliminating the deduction on U.S. manufacturing activities; and (8) creating new limitations on deductible interest expense and executive compensation.

The Securities Exchange Commission staff issued Staff Accounting Bulletin (“SAB”) 118 which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

The Act includes a transition rule to effect this participation exemption regime. As a result of the enacted legislation, taxpayers are required to include in taxable income for the tax year ending December 31, 2017, the pro rata share of deferred income of each specified foreign corporation with respect to which the taxpayer is a U.S. shareholder.

It is important to note that income tax adjustments applied to repatriated earnings and deferred taxes, may distort a companies earnings and consequently its fair value.

In the case of Apache Corporation, the company recorded a provisional net deferred tax benefit of $822 million to reverse a previously recorded deferred tax liability for unrepatriated earnings and to account for the transition rule under the new law. In addition and as a result of the decrease in the corporate income tax rate, the company recorded a provisional $516 million deferred tax expense in 2017 related to the remeasurement of the company’s December 31, 2017 deferred tax asset..

The company continues to assess other provisions of the Act including, among other items, the interaction between the deemed repatriation of foreign earnings and 2017 net operating losses as well as the applicability of new taxes on certain future foreign earnings. Provisional amounts for the income tax effects of the Act have been recorded as of December 31, 2017 and are subject to change during 2018.

Insider Transactions
In the past 12 months, the company recorded 180 insider trades involving 609,541 shares of stock. Of the 180 insider trades, 96 were Buys involving 446,094 shares of stock, and 84 were Sells involving 163,447 shares of stock, creating an insider buy to sell ratio of 2.7 to 1.

Future Value
My future (5 year hold) target price for the stock is $38, which is an average annual return of (-1%). A prior five year hold of the stock would have returned an average of (-9%) per year. Please be aware that past and future gains are based on actual and anticipated earnings, actual and anticipated dividends, and actual and anticipated price appreciation. Please also be reminded that any investment has the potential for loss, and past performance is no guarantee of future results.

Fair Warning
Fair warning means that the time for bidding has ended and a sale is about to be concluded. For Apache Corporation (NYSE: APA) - FYE 12/2017 the stock is OVER VALUED and trading at levels above my most recent ($3) close target. Please See Linked PDF Worksheet

Disclosure
I no hold shares of Apache Corporation in my portfolio.
Posted on 04/17/18