What’s Next For ConocoPhillips’ Stock?

After a 4% increase since the beginning of this year, at the current price of around $121 per share, we believe ConocoPhillips (NYSE: COP), a pure-play oil and natural gas producer, looks fairly priced at this point. In the recent first quarter, the company saw lower natural gas prices and increased costs offset higher oil production volumes. The company said it expects continued volatility in Q2 from its operations in the Permian Basin due to pipeline maintenance and third-party offtake constraints. Going forward, ConocoPhillips raised production guidance for Q2 to 1.91 million to 1.95 million barrels of oil equivalent per day (MBOED). That said, it would be prudent for investors to monitor how these projections play out and follow efforts to ensure its sustainability commitments are met. It will prove crucial to ConocoPhillips’ success that the company adheres to cost discipline, invests in innovation, and makes strategic acquisitions.

COP stock has seen extremely strong gains of 200% from levels of $40 in early January 2021 to around $121 now, vs. an increase of about 40% for the S&P 500 over this roughly 3-year period. However, the increase in COP stock has been far from consistent. Returns for the stock were 80% in 2021, 63% in 2022, and -2% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that COP underperformed the S&P in 2023.
In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for other heavyweights in the Energy sector including XOM, CVX, and PBR, and even for the megacap stars GOOG, TSLA, and MSFT. = In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could COP face a similar situation as it did in 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?

In Q1, ConocoPhillips posted total revenue of $14.5 billion, down from the $15.5 billion made in the same quarter last year. The company’s net income was down 13% y-o-y to $2.6 billion, or $2.16 per share, as the company’s averaged realized price fell 7% year-over-year (y-o-y) to $56.60 per barrel of oil equivalent (boe). This was mostly due to a 46% plunge in realized natural gas prices in the lower 48 states in the quarter; nearly half of COP’s total production volumes are natural gas or natural gas liquids. COP’s earnings were adversely affected by a milder-than-expected winter that lowered demand for heating fuel. Despite the reduced demand, total company production for the quarter rose to 1.9 mboed, up 6% y-o-y. Lower 48 production averaged 1.05 mboed with 736 mboed in the Permian, 197 mboed in the Eagle Ford, and 96 mboed in the Bakken. The Lower 48 comprises the three U.S. shale basins (Eagle Ford, Bakken, Permian Basin) and the Gulf of Mexico production, but not Alaska. Almost 55% of the total output comes from production in the Lower 48 of which 39% of the output comes from the Permian Basin itself.

We forecast COP’s Revenues to be $60.8 billion for the fiscal year 2024, up 4% y-o-y. Looking at the bottom line, we now forecast EPS to come in at $8.70. Given the changes to our revenues and earnings forecast, we have revised our COP’s Valuation to $129 per share, based on $8.70 expected EPS and a 14.8x P/E multiple for the fiscal year 2024 – almost 7% higher than the current market price.

It is helpful to see how its peers stack up. ConocoPhillips Peers shows how COP stock compares against peers on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 5/15/2024
[2] Cumulative total returns since the end of 2016 

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