APA, Coterra, Ovintiv started Outperform at William Blair, citing strong free cash flow

APA Corp. (APA), Coterra Energy (CTRA) and Ovintiv (OVV) +3.7%, +2.8% and +4.4% respectively in Wednesday's trading, along with most oil and gas stocks as crude oil rebounded from one-month lows, as William Blair analyst Neal Dingmann initiated coverage of all three names to Outperform.

APA's (APA) Permian asset quality has been criticized by some investors, but Dingmann believes the size of the position, combined with several other large operating areas, presents a unique investment, pointing to notable upside potential from Egypt's natural gas acreage given prior unexplored development and much-improved pricing structure, and Suriname's estimated recoverable resource, with drilling expected late next year; the company should generate nearly $1.4 billion in free cash flow in 2026 and $1.7 billion in 2027, the analyst said.

Coterra (CTRA) continues to demonstrate operational efficiencies in the Delaware Basin through its Windham Row project, where it operates 73 gross wells across six drilling spacing units, and the 28-gross-well Barba Row project and the 48-gross-well Bowler Row project will be coming online soon, Dingmann said, estimating the company should generate ~$2.9 billion free cash flow in 2026 and $3.9 billion in 2027, assuming oil and natural gas prices stay relatively flat in 2026 and then increase in 2027.

Ovintiv (OVV) has put together a solid asset base focusing on the Permian Basin and Montney formation, and while the company has organically and externally grown production/reserves, focus also has remained on the balance sheet with a goal of less than $4 billion in net debt likely after a potential sale of the Mid-Continent position, according to Dingmann, who sees the company generating $1.7 billion in free cash flow in 2026 and $2.4 billion in 2027.