Is ConocoPhillips Entering the ‘Best Buy’ Zone?

ConocoPhillips

On May 8, ConocoPhillips’ share prices were ~1.9% above their lowest intra-day level in 2019. On May 7, the share prices closed at $61—the lowest closing level in 2019. ConocoPhillips’ trailing 12-month PE ratio is ~10x compared to an average of 32.3x for the S&P 500 Index’s (SPY) remaining holdings in the upstream subsector. The company’s forward PE ratio is also at a discount of ~79% compared to the group’s average. ConocoPhillips’ forward EV-to-EBITDA multiple is ~5.1x—compared to the peer average of ~6.1x.

Is ConocoPhillips Entering the ‘Best Buy’ Zone?

At the current levels, ConocoPhillips offers a dividend yield of ~2%—27 basis points higher than its peers average and a surplus of one percentage point compared to the SPDR S&P Oil & Gas Exploration & Production ETF (XOP). ConocoPhillips’ break-even point to generate free cash flow is below $40 per barrel. Based on a Goldman Sachs note, it expects Brent crude oil to average $66 per barrel in 2019.

In the next five trading sessions, ConocoPhillips’ share prices should close between $59.27 and $63.59 68.0% of the time. The forecast is based on ConocoPhillips’ implied volatility of ~30% and assumes a normal distribution of prices. On May 8, ConocoPhillips closed at $61.43.

ConocoPhillips’s stock prices

On April 30, ConocoPhillips reported an adjusted EPS of $1 for the first quarter—a fall of 11.5% on a sequential basis. However, the earnings were higher than analysts’ consensus estimates for an EPS of $0.91 per share. Since April 30, ConocoPhillips’ stock prices have fallen 2.7%.

In the second quarter, ConocoPhillips’ share prices have fallen 3.7% despite an 11.8% rise in Brent crude oil prices. A fall of 10.4% in the Brent-WTI spread sequentially might have kept a lid on ConocoPhillips’ stock prices. The company’s net income sensitivity with every $1 change in Brent/Alaskan North Slope crude oil prices per barrel is $150 million. The same relationship with WTI crude oil is ~$30 million–$40 million.