We believe that ConocoPhillips stock (NYSE: COP) is currently better valued than EOG Resources stock (NYSE: EOG). EOG Resources’ current price-to-operating income ratio of 8x is higher than levels of 6x for COP. But does this gap in valuation make sense? We don’t think so, especially if we look at the fundamentals. More specifically, we arrive at our conclusion by looking at historical trends in revenues and operating income for these companies. Our dashboard Better Bet Than EOG: Pay Less To Get More From COP has more details – parts of which are summarized below.
1. Revenue Growth
The energy sector, in general, has benefited from higher crude oil prices and higher production in FY 2022 so far, as compared to the previous year. Both EOG and COP benefited from the fundamentally tight supply market caused by several factors, Firstly, a surprising economic rebound drove demand for oil after several months of lockdowns. Secondly, the supply was not able to respond to increased demand as OPEC was probably cautious not to oversupply the market again, and the fact that oil production has long investment cycles. Lastly, oil prices also increased sharply due to the conflict in Ukraine and sanctions on Russia. EOG Resources’ Revenue grew at an average rate of 11% over the last three years as compared to ConocoPhillips’ Revenue growth of a much better 33%. But even if we look at the revenue growth over the last twelve-month period – COP’s revenue growth of 111% is much better than EOG’s 61% revenue growth.
- ConocoPhillips is the world’s largest independent exploration and production company, based on proven reserves and production of liquids and natural gas. In the third quarter, ConocoPhillips’ net income nearly doubled to $4.5 billion, or $3.55 per share, from $2.4 billion, or $1.78 per share, in the year-earlier quarter. In addition, its Q3 production jumped 13.5% to 1.75 million barrels of oil equivalent (boe) per day from 1.54 million boe/day in the same period last year. The company’s Q3 total average realized price rose 46% to $83.07/boe from $56.92/boe realized in the year-ago quarter.
- EOG Resources is an independent oil and gas company that explores for, develops, produces, and markets crude oil and natural gas primarily in major producing basins in the U.S., Trinidad, Canada, and the U.K. In Q3, EOG reported quarterly revenue of $7.59 billion which was up 59% from a year ago. Non-GAAP earnings per share were $3.71 and up significantly from $2.16 a year ago. The company’s total crude oil production in Q3 of 465,100 Bopd was above the midpoint of the guidance range and in line compared with Q2 2022 production. The company accumulated 395k net acres and 135k mineral acres at a total cost of less than $500 million and expects to complete 20 proprietary wells by 2023, in addition to the 18 legacy wells already in operation.
- ConocoPhillips Stock To Likely Trade Higher Post Q4
- Earnings Beat In The Cards For ConocoPhillips Stock?
- Does ConocoPhillips Stock Face A Downside Risk?
- Long-Term Debt Obligations Weighing On PBF Energy Stock
- Is This Stock A Better Pick Over ConocoPhillips?
- Has Callon Petroleum Stock Reached Its Near-Term Potential?
2. Operating Income Growth
COP’s operating income growth also compares favorably when compared to EOG in the last twelve-month period. Better revenue growth for the former led to higher operating income.
The Net of It All
ConocoPhillips has seen higher growth in revenues and operating income than EOG in the last twelve months. Yet, COP has a comparatively lower price-to-operating income ratio when compared to EOG. This underperformance in EOG’s revenue and operating income growth compared to COP reinforces our conclusion that EOG stock is expensive compared to COP, and we think this gap in valuation will eventually narrow over time to favor the less expensive name.
It is helpful to see how its peers stack up. COP Peers shows how ConocoPhillips’ stock compares against peers on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.
|S&P 500 Return||2%||2%||74%|
|Trefis Multi-Strategy Portfolio||5%||5%||231%|
 Month-to-date and year-to-date as of 1/20/2023
 Cumulative total returns since the end of 2016