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ConocoPhillips Stock Sheds 5% in the Past Year: Buy the Dip or Wait?
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ConocoPhillips (COP - Free Report) has declined 5.4% over the past year, significantly underperforming the 18.3% gain of the composite stocks belonging to the industry. Could this downward trend reflect the company's susceptibility to analysts' widespread expectations of declining crude oil prices in 2025 and 2026?
One-Year Price Chart
Image Source: Zacks Investment Research
Before discussing the appropriate investment approach to this stock, let’s first examine some fundamental aspects of this exploration and production giant.
Marathon Oil’s Assets: A Perfect Fit for COP's Growth Strategy
Late last year, ConocoPhillips completed the Marathon Oil acquisition. The integration has broadened ConocoPhillips' key Lower 48 portfolio while enabling it to expand its presence in prolific, low-cost U.S. basins such as Eagle Ford, Bakken, Delaware and Permian, adding more than 2 billion barrels of resources.
The leading upstream energy company has consistently prioritized acquisitions that support its long-term objective of enhancing stockholder value. With the completion of the deal, ConocoPhillips anticipates achieving annual savings exceeding $1 billion by integrating operations and expects the savings to be fully realized within the next 12 months.
Strong Balance Sheet Aids COP Amid Oil Price Uncertainty
Like the Marathon Oil deal, previous acquisitions of Concho Resources and Shell plc's (SHEL) Permian assets have increased ConocoPhillips' debt. However, most analysts believe COP will maintain a stronger balance sheet than industry peers, thanks to its substantial size and robust earnings.
As evident in the snapshot, COP’s total debt-to-capitalization of almost 27% is lower than 31.1% of the industry’s composite stocks. The company’s debt-to-capitalization ratio has consistently been lower than the composite stocks over the past few years. Thus, the robust financial position will aid the leading oil producer in combating periods of low crude prices.
Image Source: Zacks Investment Research
Time to Keep an Eye on COP?
Despite the positives, several uncertainties surround the stock. In its short-term energy outlook, the U.S. Energy Information Administration projected that global oil production would exceed demand, likely putting downward pressure on oil prices and negatively impacting the revenues of oil producers like ConocoPhillips.
Additionally, as a predominantly upstream-focused company, COP is more vulnerable to oil price volatility than diversified energy giants like Chevron Corporation (CVX - Free Report) and Exxon Mobil Corporation (XOM - Free Report) , which have operations across upstream, midstream and downstream segments.
That said, ConocoPhillips’ long-term business outlook remains promising, as it stands out as one of the leading upstream players in terms of oil and gas production and reserves. Nevertheless, investors may want to await a more favorable entry point. This is because, at this moment, the Zacks Rank #3 (Hold) company’s shares are somewhat expensive on a relative basis, with the current 5.11X trailing 12-month Enterprise Value/Earnings before Interest Tax Depreciation and Amortization trading at a premium to the broader energy sector average of 4.41X. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Image Source: Zacks Investment Research
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ConocoPhillips Stock Sheds 5% in the Past Year: Buy the Dip or Wait?
ConocoPhillips (COP - Free Report) has declined 5.4% over the past year, significantly underperforming the 18.3% gain of the composite stocks belonging to the industry. Could this downward trend reflect the company's susceptibility to analysts' widespread expectations of declining crude oil prices in 2025 and 2026?
One-Year Price Chart
Before discussing the appropriate investment approach to this stock, let’s first examine some fundamental aspects of this exploration and production giant.
Marathon Oil’s Assets: A Perfect Fit for COP's Growth Strategy
Late last year, ConocoPhillips completed the Marathon Oil acquisition. The integration has broadened ConocoPhillips' key Lower 48 portfolio while enabling it to expand its presence in prolific, low-cost U.S. basins such as Eagle Ford, Bakken, Delaware and Permian, adding more than 2 billion barrels of resources.
The leading upstream energy company has consistently prioritized acquisitions that support its long-term objective of enhancing stockholder value. With the completion of the deal, ConocoPhillips anticipates achieving annual savings exceeding $1 billion by integrating operations and expects the savings to be fully realized within the next 12 months.
Strong Balance Sheet Aids COP Amid Oil Price Uncertainty
Like the Marathon Oil deal, previous acquisitions of Concho Resources and Shell plc's (SHEL) Permian assets have increased ConocoPhillips' debt. However, most analysts believe COP will maintain a stronger balance sheet than industry peers, thanks to its substantial size and robust earnings.
As evident in the snapshot, COP’s total debt-to-capitalization of almost 27% is lower than 31.1% of the industry’s composite stocks. The company’s debt-to-capitalization ratio has consistently been lower than the composite stocks over the past few years. Thus, the robust financial position will aid the leading oil producer in combating periods of low crude prices.
Time to Keep an Eye on COP?
Despite the positives, several uncertainties surround the stock. In its short-term energy outlook, the U.S. Energy Information Administration projected that global oil production would exceed demand, likely putting downward pressure on oil prices and negatively impacting the revenues of oil producers like ConocoPhillips.
Additionally, as a predominantly upstream-focused company, COP is more vulnerable to oil price volatility than diversified energy giants like Chevron Corporation (CVX - Free Report) and Exxon Mobil Corporation (XOM - Free Report) , which have operations across upstream, midstream and downstream segments.
That said, ConocoPhillips’ long-term business outlook remains promising, as it stands out as one of the leading upstream players in terms of oil and gas production and reserves. Nevertheless, investors may want to await a more favorable entry point. This is because, at this moment, the Zacks Rank #3 (Hold) company’s shares are somewhat expensive on a relative basis, with the current 5.11X trailing 12-month Enterprise Value/Earnings before Interest Tax Depreciation and Amortization trading at a premium to the broader energy sector average of 4.41X. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.