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ConocoPhillips Trades at a Premium: Is It the Right Time to Buy?
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Key Takeaways
ConocoPhillips shares rose 54.4% in a year, outpacing the industry's 31.9% gain despite premium valuation.
COP's low-cost shale assets, favorable oil prices and expanding LNG portfolio support its growth outlook.
COP targets $7B in free cash flow improvement by 2029, backed by LNG investments and the Willow project.
ConocoPhillips (COP - Free Report) is a pure-play upstream energy company, with operations in 14 countries, including the United States, Norway, Canada, Australia and Qatar. The company holds a deep inventory of low-cost supply in the U.S. Lower 48, which contributes to the majority of its consolidated liquids and natural gas production. It is also involved in the Willow Project in Alaska.
Over the past year, ConocoPhillips shares have rallied 54.4% compared with the industry’s 31.9% growth. Its peers, EOG Resources (EOG - Free Report) and Diamondback Energy (FANG - Free Report) , have risen 38.1% and 23.6%, respectively, during the same time frame. While price performance indicates a stock's attractiveness to some extent, it would be wiser to closely examine the partnership’s business and overall operating environment before offering any investment advice.
Image Source: Zacks Investment Research
Diversified Asset Portfolio and Favorable Prices Aid COP
ConocoPhillips holdsa strong portfolio of assets in the shale basins of the United States, including the Delaware Basin, Midland Basin, Eagle Ford and Bakken shale. The company highlighted that it boasts a deep, durable and high-quality inventory in the U.S. Lower 48 that supports production at low breakeven costs. In fact, management highlighted more than two decades of low-cost supply inventory in the Lower 48, offering significant production visibility.
In addition to its Lower 48 operations, the company’s production is also supported by other assets, including the oil sands in Canada and the Montney formation, and conventional assets in Asia, Europe and the Middle East. This diversified portfolio provides ConocoPhillips with opportunities to increase production and generate incremental cash flows, particularly during periods of favorable commodity prices. In its latest earnings call, management noted that the company is targeting low single-digit underlying production growth in 2027, mainly supported by its operations in the U.S. Lower 48.
The commodity pricing scenario also appears favorable for COP’s upstream business at present. The company recently reported its third-quarter results, with production of 2,302 thousand barrels of oil equivalent per day (MBOED), 97 MBOED lower than the year-ago quarter. However, higher commodity prices lifted its results. In the fourth quarter, the West Texas Intermediate spot price benchmark is expected to average $97 per barrel, higher than the year-earlier quarter’s figure, positively impacting COP’s upstream operations.
LNG Operations and Willow Project Emerge as Growth Drivers
ConocoPhillips is strengthening its presence in the global liquefied natural gas (LNG) market through long-term investments and expanding commercial offtake agreements. The conflict in the Middle East and supply disruptions through the Strait of Hormuz have tightened global LNG markets. While these disruptions have affected production in the Middle East, stronger international gas prices have improved the outlook for COP’s LNG business. The company has expanded its contracted LNG offtake portfolio to 13 million tons per annum (MTPA), strengthening its exposure to international gas markets.
A major growth opportunity is the Port Arthur LNG Phase 1 project, which is expected to start production in 2027. ConocoPhillips holds a 30% stake in the project. In addition, operations at Qatar’s North Field East (NFE) are expected to begin in the first half of 2027, followed by North Field South (NFS). These projects are expected to support longer-term production and cash flow growth.
Another major growth opportunity for the company is the Willow project in Alaska. Management noted that the project remains on track for first oil in early 2029. COP reported that processing module fabrication for the project was more than 75% complete at the end of the third quarter. The project is expected to strengthen COP's long-term production base and create opportunities for capital-efficient development of nearby resources. The company’s expanding LNG portfolio and Willow development are expected to support management's targeted free cash flow improvement by approximately $7 billion by 2029.
Image Source: ConocoPhillips
Valuation Snapshot
The valuation snapshot indicates that ConocoPhillips is currently trading at a premium compared to the industry, due to its strong fundamentals. This is reflected in its trailing 12-month enterprise value to EBITDA (EV/EBITDA) of 5.72X compared with the broader industry average of 4.68X. Its peers, EOG and FANG, are trading at 5.05X and 5.91X trailing 12-month EV/EBITDA, respectively.
Image Source: Zacks Investment Research
Final Verdict: Should You Buy?
ConocoPhillips’ upstream operations are supported by a diversified, high-quality asset portfolio across major U.S. shale basins and international markets, providing a deep inventory of low-cost resources and long-term production visibility. The current oil price environment is also favorable for the company’s earnings and cash flows in the near term.
In addition, COP is expanding its LNG business and advancing the Willow project in Alaska, on schedule. These developments are expected to support the company’s objective to deliver approximately $7 billion in free cash flow improvement by 2029. While the premium valuation warrants concern, the company's long-term outlook remains positive. As such, investors should consider owning COP, which sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
View the Zacks #1 Rank List
Image: Bigstock
ConocoPhillips Trades at a Premium: Is It the Right Time to Buy?
Key Takeaways
ConocoPhillips (COP - Free Report) is a pure-play upstream energy company, with operations in 14 countries, including the United States, Norway, Canada, Australia and Qatar. The company holds a deep inventory of low-cost supply in the U.S. Lower 48, which contributes to the majority of its consolidated liquids and natural gas production. It is also involved in the Willow Project in Alaska.
Over the past year, ConocoPhillips shares have rallied 54.4% compared with the industry’s 31.9% growth. Its peers, EOG Resources (EOG - Free Report) and Diamondback Energy (FANG - Free Report) , have risen 38.1% and 23.6%, respectively, during the same time frame. While price performance indicates a stock's attractiveness to some extent, it would be wiser to closely examine the partnership’s business and overall operating environment before offering any investment advice.
Image Source: Zacks Investment Research
Diversified Asset Portfolio and Favorable Prices Aid COP
ConocoPhillips holdsa strong portfolio of assets in the shale basins of the United States, including the Delaware Basin, Midland Basin, Eagle Ford and Bakken shale. The company highlighted that it boasts a deep, durable and high-quality inventory in the U.S. Lower 48 that supports production at low breakeven costs. In fact, management highlighted more than two decades of low-cost supply inventory in the Lower 48, offering significant production visibility.
In addition to its Lower 48 operations, the company’s production is also supported by other assets, including the oil sands in Canada and the Montney formation, and conventional assets in Asia, Europe and the Middle East. This diversified portfolio provides ConocoPhillips with opportunities to increase production and generate incremental cash flows, particularly during periods of favorable commodity prices. In its latest earnings call, management noted that the company is targeting low single-digit underlying production growth in 2027, mainly supported by its operations in the U.S. Lower 48.
The commodity pricing scenario also appears favorable for COP’s upstream business at present. The company recently reported its third-quarter results, with production of 2,302 thousand barrels of oil equivalent per day (MBOED), 97 MBOED lower than the year-ago quarter. However, higher commodity prices lifted its results. In the fourth quarter, the West Texas Intermediate spot price benchmark is expected to average $97 per barrel, higher than the year-earlier quarter’s figure, positively impacting COP’s upstream operations.
LNG Operations and Willow Project Emerge as Growth Drivers
ConocoPhillips is strengthening its presence in the global liquefied natural gas (LNG) market through long-term investments and expanding commercial offtake agreements. The conflict in the Middle East and supply disruptions through the Strait of Hormuz have tightened global LNG markets. While these disruptions have affected production in the Middle East, stronger international gas prices have improved the outlook for COP’s LNG business. The company has expanded its contracted LNG offtake portfolio to 13 million tons per annum (MTPA), strengthening its exposure to international gas markets.
A major growth opportunity is the Port Arthur LNG Phase 1 project, which is expected to start production in 2027. ConocoPhillips holds a 30% stake in the project. In addition, operations at Qatar’s North Field East (NFE) are expected to begin in the first half of 2027, followed by North Field South (NFS). These projects are expected to support longer-term production and cash flow growth.
Another major growth opportunity for the company is the Willow project in Alaska. Management noted that the project remains on track for first oil in early 2029. COP reported that processing module fabrication for the project was more than 75% complete at the end of the third quarter. The project is expected to strengthen COP's long-term production base and create opportunities for capital-efficient development of nearby resources. The company’s expanding LNG portfolio and Willow development are expected to support management's targeted free cash flow improvement by approximately $7 billion by 2029.
Image Source: ConocoPhillips
Valuation Snapshot
The valuation snapshot indicates that ConocoPhillips is currently trading at a premium compared to the industry, due to its strong fundamentals. This is reflected in its trailing 12-month enterprise value to EBITDA (EV/EBITDA) of 5.72X compared with the broader industry average of 4.68X. Its peers, EOG and FANG, are trading at 5.05X and 5.91X trailing 12-month EV/EBITDA, respectively.
Image Source: Zacks Investment Research
Final Verdict: Should You Buy?
ConocoPhillips’ upstream operations are supported by a diversified, high-quality asset portfolio across major U.S. shale basins and international markets, providing a deep inventory of low-cost resources and long-term production visibility. The current oil price environment is also favorable for the company’s earnings and cash flows in the near term.
In addition, COP is expanding its LNG business and advancing the Willow project in Alaska, on schedule. These developments are expected to support the company’s objective to deliver approximately $7 billion in free cash flow improvement by 2029. While the premium valuation warrants concern, the company's long-term outlook remains positive. As such, investors should consider owning COP, which sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.