The Country Caller explains why ConocoPhillips is a long term Buy and should be considered as a profitable investment despite negativityStrong Co-Relation with Oil PricesFocus towards EfficiencyAnalyst Estimates
ConocoPhillips (NYSE:COP) has lost around 6.63% Year-to-Date (YTD). The decline in stock price comes when oil prices have recovered and hover just below the $50 a barrel threshold. Despite of the stock’s poor performance, we believe Conoco provides a long term investment opportunity to investors.
Strong Co-Relation with Oil Prices
The oil prices at the beginning of the year remained at lower levels. After crude hit its lower levels in February this year, stock began to rise along with the recovery in crude prices. Since start of March this year, Conoco’s stock has appreciated by 28.61%.
As per rig count data of Baker Hughes, the US rigs count increased by 11 to 341. This increase was the fourth increase in the past five weeks ending. Although the number was significantly lower than 640 rigs in same period a year ago, it’s quite higher on week-over-week (WoW) basis.
The recovery in rig count data signifies confidence amongst the US exploration companies and signifies their expectations that oil had already bottomed out and is set to rise. Hence, they are opting for higher drilling activity in expectation of better crude prices. Any upward movement in crude prices could result in further rally in Conoco’s stock.
Focus towards Efficiency
Much of Conoco’s production comes from Lower 48 region such as Permian Basin and Eagle Ford, as represented
The main reason behind Conoco’s focus towards Lower 48 region is the higher efficiency, i.e. lower costs and higher production. Also, the company has sold off some assets in this region, but major production is still coming from this region which highlights its efficiency.
Despite its assets sell off and the decline in number of rigs, the production from the region has declined by about 3% on YoY basis only. The efficiency of the region can also be gauged by image below, which highlights that company would lower its capital investment in the region substantially this year, but the production is expected to remain almost flat.
The average Price Target by analysts covering the stock at Street is of $52.05, which is much higher than stock’s current price of $43.51. The highest and lowest estimates by the analyst are of $71.00 and $37.00, respectively.
The stock receives coverage from 25 analysts across the street. 12 rate the stock as Hold, while six analysts rate the stock as Buy. Five have rated the stock as Strong Buy, while one each has rated as Underperform and Sell, respectively.