ConocoPhillips (COP - Free Report) looks compelling at the moment. Given the company’s strong fundamentals, it seems like this is the right time to add the stock to your portfolio.
In terms of production and proved reserves, ConocoPhillips — headquartered in Houston, TX — is the largest oil and gas exploration and production player in the world. The company’s operations are spread across the globe, including the United States, Colombia, Chile, Norway, the United Kingdom and many other nations.
Notably, the company currently has a Zacks Rank #2 (Buy), which means that it is poised to outperform the market. Let’s delve deeper toanalyzethe factors that make this upstream energy player an attractive investment option at the moment.
The bulk of acres that ConocoPhillips holds in the three big unconventional plays — namely Eagle Ford, Delaware basin and Bakken shale plays — is rich in oil. The company is planning to operate 10-11 rigs in these prolific plays through 2019. Notably, ConocoPhillips has significant opportunities in the Eagle Ford shale, wherein it owns about 3,400 undrilled locations that could lend access to almost 2.3 billion barrels of oil equivalent potential reserves. From the three unconventional plays, ConocoPhillips projects compound annual production growth rate of more than 25% through 2019 from 2017.
Production to Surge
Now let’s focus on the company’s production guidance. For 2019, it expects output in the range of 1,300-1,350 thousand barrels of oil equivalent per day (MBoe/d). The projection is significantly higher than the 2018 level of 1,242 MBoe/d. Notably, for second-quarter 2019, the company projects production in the range of 1,240-1,280 MBoe/d. Although production is expected to be affected by planned turnarounds in Alaska, Canada and Europe, output is still expected to be higher than the year-ago level of 1,211 MBoe/d. This is likely to lead to improved year-over-year results.
Returning Cash to Shareholders
The company recorded free cash flow of $5.5 billion in 2018, which enabled it to buy back $3 billion of shares and pay $1.4 billion in dividends. In first-quarter 2019, the company generated free cash flow of $1.3 billion that enabled it to repurchase $800 million worth of shares and pay $3 million in dividends. With the help of its growing strength in operations, the company expects to buy back $3 billion of shares through 2019. After raising dividend by 15% through 2018, the company is planning to further increase its dividend this year.
All the factors stated above make the stock a rewarding one. But one should consider estimate revisions and earnings history, along with strength in operations to understand its true potential.
Earnings History & Future Prospects
In the last reported quarter, the company’s earnings of $1.00 per share beat the Zacks Consensus Estimate of 92 cents, aided by increased volumes from unconventional assets and higher natural gas price realization. ConocoPhillips beat estimates in the trailing four quarters, delivering average positive earnings surprise of 10.5%.
The Zacks Consensus Estimate for second-quarter earnings of $1.15 has witnessed three upward revisions by firms in the past 30 days. This estimate is indicative of a 5.5% increase from the year-ago reported earnings of $1.09. Hence, this energy stock offers substantial upside potential.
Other Stocks to Consider
Other top-ranked players in the energy space include Hess Corporation (HES - Free Report) , Cactus, Inc. (WHD - Free Report) and USA Compression Partners, LP (USAC - Free Report) . While Hess sports a Zacks Rank #1 (Strong Buy), Cactus and USA Compression hold a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Hess’ earnings are expected to grow more than 115% through 2019.
Cactus’ earnings growth is projected at 11.8% through 2019.
USA Compression’s earnings growth is projected at 97.7% through 2019.
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