ConocoPhillips (NYSE: COP), a pure-play oil and natural gas producer, is scheduled to announce its fiscal third-quarter results on Thursday, November 2. We expect ConocoPhillips stock to trade lower post Q3 with both revenue and earnings missing market expectations marginally. Oil prices were surprisingly lower than expected at the beginning of this year. However, crude oil picked up on expectations of tighter supply ever since Saudi Arabia and Russia extended their voluntary output cuts of a combined 1.3 million barrels per day (bpd) to the end of the year 2023 – in order to support prices. Among the most significant risks to oil markets since Russia’s invasion of Ukraine last year is the latest geopolitical tension between Hamas and Israel. There have not yet been any impacts on oil flows due to the conflict, but there could be major repercussions if it escalates. If the U.S. steps up sanctions against Iran, this would likely further strain an already tight oil market. The growing tight supplies due to geopolitical uncertainty and the soaring demand from the reopening of China’s economy could likely bode well for energy prices by the end of 2023.
COP stock has seen extremely strong gains of 200% from levels of $40 in early January 2021 to current levels now, vs. an increase of about 10% 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 0% in 2023 (YTD). In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 7% in 2023 (YTD) – 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 BP, and even for the mega-cap 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?
Our forecast indicates that ConocoPhillips’ valuation is around $104 per share, which is 12% lower than the current market price. Look at our interactive dashboard analysis on ConocoPhillips Earnings Preview: What To Expect in Q3? for more details.
(1) Revenues expected to be slightly below the consensus estimates
Trefis estimates COP’s Q3 2023 revenues to be around $13.8 Bil, marginally below the consensus estimate. In Q2, the company’s revenues fell 41% y-o-y to $12.9 billion. Q2 total production jumped 6.7% to a record 1.8 million boe/day and Q2 oil output rose 6% y-o-y to a record 1.6 million barrels/day – primarily driven by new wells online in the Lower 48 and improved well performance across the portfolio. 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 58% of the total output comes from production in the Lower 48 of which 38% of the output comes from the Permian Basin itself. The company said it signed 20-year offtake agreements at the Saguaro LNG export facility on the west coast of Mexico for ~2.2 million metric tons/year, subject to Mexico Pacific reaching a final investment decision.
Going forward, Conoco raised its full-year production guidance to 1.8 million-1.81 million barrels of oil equivalent (boe) from 1.78 million-1.8 million boe/day previously, with Q3 production seen at 1.78M-1.82M boe/day. The company also revised full-year cost guidance to $8.3 billion compared to the prior outlook for $8.2 billion, and narrowed guidance for full-year capital spending to $10.8 Bil-$11.2 Bil from $10.7 Bil-$11.3Bil, reflecting ongoing progress on development plans.
(2) EPS likely to miss consensus estimates marginally
COP’s Q3 2023 earnings per share (EPS) is expected to be $1.95 as per Trefis analysis, missing the consensus estimate slightly. In the second quarter, the company’s net income fell to $2.23 billion, or $1.84 per share, from $5.15 billion, or $3.96 per share, in the year-earlier quarter. This was also because the company’s average realized prices fell 38% y-o-y to $54.50/boe from $88.57/boe in the prior-year period.
(3) Stock price estimate lower than the current market price
Going by our COP’s Valuation, with an EPS estimate of around $9.76 and a P/E multiple of around 10.7x in fiscal 2023, this translates into a price of nearly $104, which is 12% lower 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.
|S&P 500 Return||-4%||7%||84%|
|Trefis Reinforced Value Portfolio||-5%||17%||500%|
 Month-to-date and year-to-date as of 10/31/2023
 Cumulative total returns since the end of 2016