YPF - YPF Sociedad: Shares Still A Value Bullish Consolidation On The Chart

Summary

• The Energy sector has taken a pause this year after back-to-back winning years.
• YPF Sociedad has also consolidated lately after a massive advance in 2022.
• I see more upside ahead as the valuation remains compelling while the chart appears bullish ahead of Q4 earnings.

The Energy sector is in the red in 2023 after a pair of stellar annual returns in the previous two calendar years. Oil prices are just sort of meandering in the $70s while natural gas has been very volatile. Perhaps a pause is understandable as 2023 earnings estimates for the space are rather lousy according to John Butters at FactSet. YPF Sociedad has an earnings release ahead, and I see value in the name while the technicals are taking a breather.

Energy Sector in the Red in 2023

According to Bank of America Global Research, YPF (YPF) is an integrated oil company with operations in E&P, refining, distribution, and petrochemicals that is expected to see better trends over the next few years. The company has total oil and gas reserves of 1,043mn boe (56% oil) and total production of 511tboepd in 2020 (53% oil/NGLs). Virtually all of its operations are in Argentina.

The Argentina-based $8.6 billion market cap Oil, Gas & Consumable Fuels industry company within the Energy sector trades at a low 2.3 trailing 12-month GAAP price-to-earnings ratio and does not pay a dividend, according to The Wall Street Journal.

With improving developments in key upstream areas, YPF's growth outlook is on the mend while significant country risks remain present. Another key risk is foreign currency developments. With the stock price having surged from under $3 to the low teens today, a lot of optimism has been priced in. With an impressive earnings beat in its Q3 report and steadier global oil prices, I see the stock as still a decent value, but investors must recognize the macro risks present with this firm.

On valuation, analysts at BofA see earnings rising about 8% this year and then jumping big in 2024, though high political, regulatory, and FX risks remain. On an ADR EPS basis, shares could generate around $3 of earnings per year through 2024 while the Bloomberg consensus is less upbeat. If we place just a 5.0 P/E on that, then we are looking at a $15 stock. There could also be dividends on the name before long while the stock trades at a low EV/EBITDA ratio with volatile free cash flow.

YPF: Earnings, Valuation, Free Cash Flow Forecasts

Looking ahead, corporate event data provided by Wall Street Horizon shows an unconfirmed Q4 2022 earnings date of Thursday, March 9, after the closing bell.

Corporate Event Risk Calendar

The Options Angle

Digging into the upcoming earnings report, data from Option Research & Technology Services (ORATS) show a consensus EPS forecast of $1.05 versus just $0.63 of per-share profits earned in the same period a year ago. The stock has a mixed earnings beat rate history and shares have traded higher post-earnings in the last two quarters after three consecutive moves lower after reporting.

Options traders have priced in a somewhat small 5.7% earnings-related stock price swing after Thursday's earnings release. Shares have not moved more than 4.6% following the last five reports, so the premium level appears fair to me here. Moreover, with shares in consolidation mode, a big swing may not happen this time.

YPF: Fairly Priced Options Ahead of Earnings

The Technical Take

YPF is in a bull flag or perhaps a pennant formation right now - a move above $13 on volume would help confirm a continuation of an uptrend. Notice in the chart below that the $12 to $13 range is significant and there's an old gap that could be filled up to around $16 - so that's a good place to take profits from a long position. I would have a stop under $10 - under the bullish consolidation low. Long-term support that I noted back in October is seen around $5.50 to $6.

YPF: Pausing at Long-Term Resistance

The Bottom Line

I still see shares of YPF as a decent value while the technicals show a bullish pause. I see upside potential as more likely than downside risk. Still, there are always unknowns with companies domiciled in Argentina.

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