ConocoPhillips (COP)

Equity
US
Energy

RISK

RETURN

Key risk factors

Strong trading liquidity

Low default risk

Vulnerable to price shocks

Key return factors

Very strong margins and returns

Good growth

Decent dividends

Company profileConocoPhillips explores for, produces, transports, and markets crude oil, bitumen, natural gas, liquefied natural gas (LNG), and natural gas liquids worldwide. It primarily engages in the conventional and tight oil reservoirs, shale gas, heavy oil, LNG, oil sands, and other production operations. The company's portfolio includes unconventional plays in North America; conventional assets in North America, Europe, Asia, and Australia; various LNG developments; oil sands assets in Canada; and an inventory of conventional and unconventional exploration prospects. ConocoPhillips was founded in 1917 and is headquartered in Houston, Texas.

Valuation: Slightly overvalued

Multiple

TTM

NTM

P/E

13.10

12.90

PEG

0.50

P/B

2.80

2.30

P/S

2.50

2.30

P/FCF

16.60

13.20

EV/EBITDA

6.10

6.40

Considering past and projected metrics, the stock is moderately 'expensive' compared to its peers. Specifically, the stock is fairly valued on P/E, neutral on EV/EBITDA, and reasonably priced on P/FCF.

Performance: Mixed

The stock's performance has been mixed in the past six months, with growth following a decline. There is no clear price trend compared to its global peers from the same sector and industry (as shown above). It has underperformed this peer group by 2ppts over six months and grown 10ppts slower in the past month. This is largely true for peers from the same country and sector. With respect to the stock's valuation against its peers, its overall price performance is neutral.

Analyst view: Somewhat favourable

The average target price is 153 and suggests 30% upside potential. Usually, this means a BUY recommendation among investment firms, or a recommendation to increase one's position in this instrument in the next 12 months. The most optimistic analyst has a target price of 166.0. This translates into 41% upside potential in the best case. On the other hand, the most pessimistic analyst has a target price of 125.0. This suggests 6% upside potential. Even the most pessimistic analyst believes there will be stock growth.

Profitability: Very strong

RoE

ConocoPhillips reported a return on equity (RoE) of 21.5% in the last 12 months, down from 22.5% in FY23. The market consensus projects an RoE of 23.2% in FY24, again ahead of its peers.

RoA

Another important profitability metric, return on assets (RoA), amounted to 11.1% in the last 12 months, a decrease from 11.5% in FY23. The market analysts predict that RoA will be 12.1% in FY24, again stronger than its peers.

RoCE

In the last 12 months, the return on capital employed (RoCE) declined to 12.4%, above the peers. The consensus estimate for FY24 for RoCE is 20.8%, again ahead of the peers.

Net margin

EBITDA margin

Historically, COP has reported very strong net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 19.2%, down from 19.5% in FY23. The company has reported strong EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 44.5% in the last 12 months, a decline from 44.5% in FY23.

RoIC / WACC = 2.8(strong value creation)

The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 2.8 in the past several years. This ratio implies a strong shareholder value creation.

Growth: Good

Revenue

EBITDA

EPS

Free cash flow

COP reported revenue of USD 55 093mn in the last 12 months, down 2% from FY23. At the same time, the dynamics of cash flow, as measured by free cash flow (FCF), were drastically different. EPS fell 2% from FY23 to USD 8.86. Market expects EPS to reach USD 8.79 in FY24.Revenue has been growing steadily in the past several years (positive), while EBITDA has grown very rapidly in recent years (positive). Net income has fallen rapidly in recent years (strongly negative). Free cash flow naturally followed the growing EBITDA trend. We emphasize the highly volatile dynamics of all key metrics. This is an extremely negative factor.

Dividends: Decent

Dividend paid

Dividend yield

The company has a track record of regular dividend payments. It has paid dividends in each of the past ten years. Dividend per share (DPS) has grown yearly, but the dynamics are unclear. In the past 12 months, the dividend yield has been good and slightly above its peers. On average, the company pays dividends every two months, which may appeal to investors valuing a regular income stream.

Default risk: Low

The risk of default is low. We note robust profitability, solid return on capital, strong debt servicing capacity, adequate interest coverage, solid cash flow generation, and an favourable capital structure, among the positive credit factors. Among the negative credit factors, we point to excessive margin volatility.

Volatility: Modest

In normal market circumstances, COP is as volatile as an index. Put differently, without outstanding market volatility or shocking company news, the stock's price will move with the index. The stock's losses on its worst days (less than 1-5% of the time) will range from moderate to average.

Stress-test: Meaningful

In highly turbulent market conditions, COP is volatile. In other words, the stock will fall much more than the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be large.

Selling difficulty: Very low

COP boasts very high trading liquidity. The average private investor can sell his common position in the stock immediately. Liquidity is usually very stable and remains favourable on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions.

Country risk: Very low

The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.

Other risks: Negligible

No other major risks have been identified.