The Premium On ConocoPhillips Keeps Growing. So Does The Case For Diamondback Energy and EQT
In the energy patch, paying up for size and stability is a classic move, but what if faster growth is available for a lower price?
For an investor in ConocoPhillips (COP), the question isn’t whether you own a quality energy producer, but what exactly the premium for that quality is buying. The company operates in the same oil and gas production industry as Diamondback Energy (FANG) and EQT (EQT), yet the market charges meaningfully more for each dollar of ConocoPhillips’s profit. That valuation gap has widened over the past year against Diamondback, making the question of what you get for the extra cost more pointed than ever.
The market currently values ConocoPhillips at 11.1 times its operating profit, while charging just 9.4 times for Diamondback and 8.4 times for EQT. Meanwhile, both peers are posting faster revenue growth. This isn’t a settled debate; it’s a live choice between three different ways to own a piece of the U.S. energy sector.
ConocoPhillips: Global Scale and a Rock Solid Balance Sheet
The case for ConocoPhillips’s premium starts with its sheer scale and financial fortitude. This is a global enterprise with a diversified portfolio, from its record-setting Permian position to major international projects. Management is focused on a long-term prize, stating they are “firmly on track to deliver our $7 billion free cash flow inflection by 2029.” This is a bet on a large, predictable increase in cash generation, underpinned by major projects like the Willow development in Alaska, where management says the Peak CapEx. is behind us.
This long-range plan is backed by a balance sheet management describes as “rock solid,” with leverage “well below 1x” and cash of more than $8 billion. That financial strength allows the company to pursue strategic growth, such as recent agreements to redevelop the Kirkuk field in Iraq, which it expects to be self-funding. For investors, the premium buys a stake in a diversified giant with a clear, multi-year plan to grow cash flow and return it to shareholders.
The key numbers side by side, today:
| Metric | COP | FANG | EQT |
|---|---|---|---|
| P/OpInc* | 11.1x | 9.4x | 8.4x |
| LTM OpInc Growth | 9.3% | 23.1% | 90.2% |
| 3Y Avg OpInc Growth | -8.9% | 7.7% | 358.1% |
| LTM Revenue Growth | 9.6% | 21.2% | 30.2% |
| 3Y Avg Revenue Growth | -1.1% | 28.4% | 13.5% |
OpInc = Operating Income, P/OpInc = Price To Operating Income Ratio
And the same comparison exactly a year ago, so you can see which way the mismatch has been moving:
| Metric | COP | FANG | EQT |
|---|---|---|---|
| P/OpInc* | 9.1x | 8.1x | 14.7x |
| LTM OpInc Growth | -14.3% | 2.0% | 1088.7% |
| 3Y Avg OpInc Growth | -16.2% | -6.5% | 320.6% |
| LTM Revenue Growth | 2.4% | 51.8% | 59.1% |
| 3Y Avg Revenue Growth | -3.6% | 18.3% | -1.5% |
OpInc = Operating Income
An Alternative: Lower-Valued, Faster-Growing Peers
By paying that premium, however, an investor forgoes the distinct advantages offered by more focused peers. Diamondback Energy is not only cheaper per dollar of operating profit but also grew revenue at 21.2% over the last year, compared to 9.6% for ConocoPhillips. It also boasts a higher operating margin of 35.7%, offering a combination of growth and profitability that its larger rival currently doesn’t match.
EQT presents an even starker contrast. As the cheapest of the three at an 8.4 multiple, it is also the fastest growing of the three, with revenue up 30.2% over the last twelve months. EQT is a natural gas specialist that recently raised its forward guidance for total sales volume. The company is pushing operational boundaries, recently drilling the “longest lateral in the history of shale development,” and is expanding its market access by signing a new 5-year LNG offtake agreement. For investors looking for a different risk profile, an oil and gas ETF like XOP offers exposure to the broader industry, including all three of these companies.
A Choice of Investment Strategy
The choice ultimately comes down to strategy. Paying up for ConocoPhillips is a vote of confidence in a global, diversified model and a management team that has a high “say-do ratio” on delivering its long-term cash flow targets. The appeal is the promise of stability and a significant, planned increase in shareholder returns a few years down the road.
Opting for Diamondback or EQT is a bet that focused, nimble operators can generate superior returns now by concentrating on specific, high-return assets. The tradeoff is clear: Are you buying the proven stability and future cash flow inflection of a global giant, or the faster growth and lower current valuation of its more specialized peers? The key variable to watch for ConocoPhillips is its capital spending. Management has guided that “we absolutely expect our CapEx to move lower from here.” Verifying that trend in upcoming quarters is the test of whether the premium is paying for a future that is truly on track.
Want To Stack Them Up Side By Side Yourself?
You can line ConocoPhillips and Diamondback Energy and EQT up directly on the ConocoPhillips peer comparison, weigh them on valuation, growth, margins, and returns, and swap in any other Oil & Gas Exploration & Production names you hold.
The Better Bet Is Still One Bet
Picking the statistically better stock improves the odds, it does not change how much rides on one name. A position that has grown large enough to matter is worth sizing deliberately rather than by accident. What a position that size would do to your net worth is exactly what the Trefis Wealth team computes, with the same rules-based systematic discipline that runs our High Quality Portfolio. Request a free vulnerability audit of your biggest positions.