Buy or Sell ConocoPhillips Stock?

ConocoPhillips (COP) stock has jumped 18% during the past month, and is currently trading at $129.35. We believe there are a few things to fear in COP stock given its overall moderate operating performance and financial condition. This is aligned with the stock’s moderate valuation because of which we think it is fairly priced.

Below is our assessment:

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Let’s get into details of each of the assessed factors but before that, for quick background: With $159 Bil in market cap, ConocoPhillips provides exploration, production, transportation, and marketing of crude oil, bitumen, natural gas, LNG, and natural gas liquids globally, with unconventional plays across North America, Europe, Asia, and Australia.

[1] Valuation Looks Moderate

This table highlights how COP is valued vs broader market. For more details see: COP Valuation Ratios

[2] Growth Is Very Weak

• ConocoPhillips has seen its top line shrink at an average rate of -7.8% over the last 3 years
• Its revenues have grown 7.7% from $55 Bil to $59 Bil in the last 12 months
• Also, its quarterly revenues declined -5.9% to $13 Bil in the most recent quarter from $14 Bil a year ago.

This table highlights how COP is growing vs broader market. For more details see: COP Revenue Comparison

[3] Profitability Appears Strong

• COP last 12 month operating income was $11 Bil representing operating margin of 19.2%
• With cash flow margin of 33.6%, it generated nearly $20 Bil in operating cash flow over this period
• For the same period, COP generated nearly $8.0 Bil in net income, suggesting net margin of about 13.6%

This table highlights how COP profitability vs broader market. For more details see: COP Operating Income Comparison

[4] Financial Stability Looks Strong

• COP Debt was $23 Bil at the end of the most recent quarter, while its current Market Cap is $159 Bil. This implies Debt-to-Equity Ratio of 14.8%
• COP Cash (including cash equivalents) makes up $7.0 Bil of $122 Bil in total Assets. This yields a Cash-to-Assets Ratio of 5.7%

[5] Downturn Resilience Is Weak

COP has fared worse than the S&P 500 index during various economic downturns. We assess this based on both (a) how much the stock fell and, (b) how quickly it recovered.

2022 Inflation Shock

• COP stock fell 33.5% from a high of $122.71 on 7 June 2022 to $81.61 on 14 July 2022 vs. a peak-to-trough decline of 25.4% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 13 October 2022
• Since then, the stock increased to a high of $134.94 on 7 November 2022 , and currently trades at $129.35

 
2020 Covid Pandemic

• COP stock fell 65.9% from a high of $66.48 on 6 January 2020 to $22.67 on 18 March 2020 vs. a peak-to-trough decline of 33.9% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 27 September 2021

 
2008 Global Financial Crisis

• COP stock fell 63.3% from a high of $73.22 on 17 June 2008 to $26.86 on 2 March 2009 vs. a peak-to-trough decline of 56.8% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 17 October 2013

But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, outlook changes. Read COP Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.

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