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What COP’s, EOG’s, OXY’s, and APC’s Current Valuation Indicates

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Price-to-cash flow from operations

Among the four upstream peers we’re looking at, EOG Resources (EOG) has the highest forward price-to-CFFO[1.cash flow from operations] ratio, of 8.6x. EOG’s high valuation might reflect its strong CFFO growth potential, capital efficiency resulting in a higher return on capital employed, and low leverage. EOG’s CFFO is expected to grow 78.3% YoY (year-over-year) this year, and 25.4% and 16.4% in 2019 and 2020, respectively. However, EOG’s current multiple is below its historical average of 11.5x.

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Anadarko Petroleum (APC) has the lowest forward price-to-CFFO multiple among the selected peers, of 4.9x, which is below its historical average of 7.6x. APC’s current valuation looks attractive considering its strong expected cash flow growth and focus on the prolific Delaware and DJ (Denver-Julesburg) basins. However, the company’s weak financial position and negative free cash flow are a slight concern. APC’s CFFO is expected to grow 60.3% this year, before falling to 20.9% and 7.1% in 2019 and 2020, respectively.

ConocoPhillips (COP) and Occidental Petroleum (OXY) both have a forward price-to-CFFO multiple of 7.1x, above the peer average of 6.9x but below their historical averages of 7.4x and 10.0x, respectively. COP’s and OXY’s CFFO is expected to grow 63.1% and 54.3% YoY this year. In the next article, we’ll look at the four peers’ technical indicators.

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