The company is poised to return to low single-digit production growth with a more pronounced recovery in earnings

Published By: Ken Bock on January 11, 2017 08:02 am EST

In an initiation note to investors, Hilliard Lyons rated ConocoPhillips (NYSE:COP) a Long Term Buy with a $65 price target, implying 30.89% upside potential over Tuesday's closing price of $49.66. The firm believes Conoco is poised to revive growth through earnings and cash flow recovery.

Analyst Joel Havard of Hilliard Lyons said, “With the commodity price environment showing indications of a sustainable recovery and several major projects recently concluded, we believe the company is poised to return to low single-digit production growth with a more pronounced recovery in earnings and cash flows.”

Since the downfall in oil prices beginning 2014, Conoco’s breakeven point has significantly declined from over $75 per barrel to below $50. The company was amid a major expansion phase when the downfall began and it required the oil giant to spend more than it earned at triple digit oil prices. Conoco could not keep up the investment level and declined significantly given the downturn in oil sector.

With the new market reality, Conoco’s primary focus was to reduce costs so as to adjust to even lower prices. The two main targets set by the company were its operational expenses and CAPEX budget. Given its continued efforts to cut costs, COP now believes it only requires spending $5 billion on capital expenditure per year to maintain current production levels.

Furthermore, it says operational expenses have averaged about $5.2 billion per year. With the break-even level as low as $50 per barrel, COC is expected to sustain operations in any oil price scenario. As of now, ConocoPhillips seem to have a much stronger position than it had at the start of the oil prices downfall. Therefore, analysts believe ConocoPhillips is a great investment opportunity.