Oil & Gas Stocks

ConocoPhillips Valuation – February 2019 $COP

Company Profile (excerpt from Reuters): ConocoPhillips, incorporated on November 16, 2001, is an independent exploration and production (E&P) company. The Company explores for, produces, transports and markets crude oil, bitumen, natural gas, liquefied natural gas (LNG) and natural gas liquids. The Company operates through six segments: Alaska, Lower 48, Canada, Europe and North Africa, Asia Pacific and Middle East, and Other International. As of December 31, 2016, its operations were in the United States, Norway, the United Kingdom, Canada, Australia, Timor-Leste, Indonesia, China, Malaysia, Qatar and Libya. Its portfolio includes North American unconventional assets and oil sands assets in Canada; conventional assets in North America, Europe, Asia and Australia; LNG developments, and an inventory of conventional and unconventional exploration prospects. The Company’s subsidiaries include ConocoPhillips Company, ConocoPhillips Canada Funding Company I and Burlington Resources, Inc.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of COP – February 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $78,819,282,328 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.99 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -98.62% Fail
6. Moderate PEmg Ratio PEmg < 20 167.12 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.53 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.99 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.04 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $0.41
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade F
MG Value based on 3% Growth $6.01
MG Value based on 0% Growth $3.52
Market Implied Growth Rate 79.31%
Current Price $69.30
% of Intrinsic Value N/A

ConocoPhillips does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings stability or growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $6.85 in 2014 to an estimated $0.41 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 79.31% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into ConocoPhillips revealed the company was trading above its Graham Number of $47.64. The company pays a dividend of $1.06 per share, for a yield of 1.5% Its PEmg (price over earnings per share – ModernGraham) was 167.12, which was above the industry average of 43.92. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-20.26.

ConocoPhillips scores quite poorly in the ModernGraham grading system, with an overall grade of F.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$20.26
Graham Number $47.64
PEmg 167.12
Current Ratio 1.99
PB Ratio 2.53
Current Dividend $1.06
Dividend Yield 1.53%
Number of Consecutive Years of Dividend Growth 1

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Total Current Assets $14,723,000,000
Total Current Liabilities $7,401,000,000
Long-Term Debt $14,902,000,000
Total Assets $70,556,000,000
Intangible Assets $0
Total Liabilities $38,477,000,000
Shares Outstanding (Diluted Average) 1,172,694,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.88
Dec2017 -$0.70
Dec2016 -$2.91
Dec2015 -$3.58
Dec2014 $5.51
Dec2013 $7.38
Dec2012 $6.72
Dec2011 $8.97
Dec2010 $7.62
Dec2009 $2.94
Dec2008 -$10.73
Dec2007 $7.22
Dec2006 $9.66
Dec2005 $9.55
Dec2004 $5.80
Dec2003 $3.46
Dec2002 -$0.31
Dec2001 $2.82
Dec2000 $3.63
Dec1999 $1.20
Dec1998 $0.46

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.41
Dec2017 -$0.50
Dec2016 $0.61
Dec2015 $3.25
Dec2014 $6.85
Dec2013 $7.26
Dec2012 $5.83
Dec2011 $4.66
Dec2010 $2.78
Dec2009 $1.49
Dec2008 $1.94
Dec2007 $7.90
Dec2006 $7.37
Dec2005 $5.57
Dec2004 $3.41
Dec2003 $2.20
Dec2002 $1.56

Recommended Reading:

Other ModernGraham posts about the company

ConocoPhillips Valuation – April 2018 $COP
ConocoPhillips Valuation – July 2016 $COP
58 Companies in the Spotlight This Week – 1/31/15
Conoco Phillips Annual Valuation – 2015 $COP
14 Companies in the Spotlight This Week – 1/18/14

Other ModernGraham posts about related companies

Devon Energy Corp Valuation – January 2019 $DVN
Noble Energy Inc Valuation – January 2019 $NBL
ONEOK Inc Valuation – January 2019 $OKE
Marathon Oil Corp Valuation – January 2019 $MRO
HollyFrontier Corp Valuation – January 2019 $HFC
Hess Corp Valuation – January 2019 $HES
Cimarex Energy Co Valuation – January 2019 $XEC
EQT Corp Valuation – January 2019 $EQT
Helmerich & Payne Inc Valuation – January 2019 $HP
Williams Companies Inc Valuation – January 2019 $WMB

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Back To Top