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ConocoPhillips (COP) Up 9.6% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for ConocoPhillips (COP - Free Report) . Shares have added about 9.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is ConocoPhillips due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

ConocoPhillips Q3 Earnings Beat Estimates on Production Surge

ConocoPhillips reported third-quarter 2019 adjusted earnings per share of 82 cents, beating the Zacks Consensus Estimate of 78 cents. However, the bottom line declined from the year-ago figure of $1.36 per share.

Based in Houston, TX, the world’s largest independent oil and gas producer’s quarterly revenues of $10,093 million decreased from third-quarter 2018 sales of $10,165 million. However, the figure beat the Zacks Consensus Estimate of $7,058 million.

The better-than-expected third-quarter 2019 results are primarily attributable to higher volumes from the company’s unconventional assets and lower expenses on purchased commodities. However, it was partially offset by lower realized commodity prices and higher exploration costs.

Production Growth

Total production averaged 1,366 thousand barrels of oil equivalent per day (MBoe/d), up 8.3% from the year-ago quarter’s 1,261 Mboe/d. ConocoPhillips’ production of crude oil came in at 710 thousand barrels per day (MBD), higher than the year-ago quarter’s 635 MBD.

The company’s production of natural gas liquids came in at 114 MBD, higher than the year-ago quarter’s 106 MBD. Bitumen production in the quarter was recorded at 63 MBD, marginally lower than the third-quarter 2018 figure of 65 MBD.

Natural gas output came in at 2,871 million cubic feet per day (MMcf/d), higher than the year-ago level of 2,732 MMcf/d. The overall production was aided by 21% year-over-year growth in the company’s Big 3 unconventional assets (Eagle Ford, Bakken and Delaware), alongside Alaska, Europe and Asia Pacific operations.

Realized Prices Decline

The average realized crude oil price during the third quarter was $59.57 per barrel, representing a decrease from the year-ago realization of $73.05. Realized natural gas liquids price was recorded at $15.59 per barrel, lower than the year-ago quarter’s $35.14. Average realized natural gas price during third-quarter 2019 was $4.74 per thousand cubic feet, down from the year-ago period’s $5.81. As such, average realized equivalent prices fell 18.4% to $47.07 per barrel from the year-ago level of $57.71.

Total Expenses Fall

ConocoPhillips’ third-quarter total expenses decreased to $6,600 million from $7,259 million in the corresponding period of 2018, owing to lower purchased commodities. Production and operating expenses fell to $1,331 million in the reported quarter from $1,367 million in the year-ago period. However, exploration costs rose to $360 million in third-quarter 2019 from $103 million in the comparable period of 2018.

Balance Sheet & Capital Spending

As of Sep 30, 2019, the oil giant — with a market capitalization of around $61.8 billion — had $7,193 million in total cash and cash equivalents. The company had a total long-term debt of nearly $14,799 million, representing a debt-to-capitalization ratio of 30%.

In the reported quarter, ConocoPhillips generated $2.3 billion in net cash from operating activities. Capital expenditures and investments totaled $1.7 billion, and dividend payments grossed $341 million. The company repurchased shares worth $749 million in the quarter.

Guidance

For fourth-quarter 2019, its production guidance is projected in the range of 1,265-1,305 MBoe/d, excluding Libya. The guidance incorporates the impacts from the divestment of U.K. assets, which generated proceeds of $2.2 billion. It has reiterated its guidance for all other metrics.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -8.7% due to these changes.

VGM Scores

At this time, ConocoPhillips has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, ConocoPhillips has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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