How is ConocoPhillips’ Stock Shaping Up Going Into 2019?

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COP
ConocoPhillips

ConocoPhillips (NYSE: COP) has increasingly been investing in Canadian shale in order to increase their  volumes. Going into 2019, management has guided investors that it plans to do $6.1 billion in capital expenditure for the year. With free cash flow expected to occur at prices above $40/ BBL WTI.  Furthermore, ConocoPhillips expects that production will be in the range of 1.3-1.35 MBOE/d which would result in a 5% increase in production year over year.

We currently have a price estimate of $71 per share for ConocoPhillips, which is 24% higher than its market price. View our interactive dashboard – ConocoPhillips in 2019 – and modify the key drivers to visualize the impact on the company’s valuation.

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The stock currently trades at a price/sales of 2.21, price to earnings of $13.07, and price to book of 2.35. All these figures are lower than those of  similarly sized peers. Furthermore, ConocoPhillips has a relatively low debt to equity, with a relatively high return on equity. Which bodes well for the stock as cash flows improve in the coming quarters with increased production from its Canadian shale operation.

 

ConocoPhillips has been increasingly investing in Canadian Montney Shale, with 143,000 acres under usage, with proven reserves totaling 2 billion and potential reserves upwards of 8 billion, with new technology and techniques providing recovery of previously inaccessible crude reserves. ConocoPhillips has been increasingly using these advanced methods to improve recovery rates and recovery speed.

In addition to crude oil, the company has been improving the recovery of natural gas. Management has taken steps to ensure the right infrastructure is built, specifically cryogenic recovery systems. It has also taken the steps ensure proper processing plants are set up.

 

With Natural Gas prices on the rise, ConocoPhillips should see improved EBITDA margins. The increase in natural gas prices should offset the recent declines in the price of oil, and  all of this should result in an improved bottom line for the company in 2019.

With the recent sell-off, the current market price, being $57, we believe there is some upside to the stock going forward. With expectations of cuts in the future, and oil price recovery, ConocoPhillips could see 10-20% returns in 2019.

 

 

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