ConocoPhillips’s (COP) second-quarter earnings results are expected on July 30. Analysts’ consensus estimates suggest that the adjusted EPS might rise 5% on a sequential basis. At management guidance’s midpoint, the total output volume will likely fall 4.4% on a sequential basis. The fall is due to a seasonal turnaround for assets located in Alaska, Europe, and Canada. However, higher oil prices might compensate for the lower volume.
On a year-over-year basis, the adjusted EPS will likely fall approximately 4%. For Henry Hub natural gas prices, the second quarter is the worst quarter in the last three years. Although the average rise in WTI crude oil prices was 9.1% sequentially in the second quarter, the prices have fallen 13.9% since the second quarter of 2018. ConocoPhillips’s production mix in natural gas is 35%, while the rest is in oil-price linked commodities. On a year-over-year basis, the total output might rise by 45 thousand barrels per day excluding Libya. The rise might explain the expectation for a small decline in the EPS during this period.
ConocoPhillips’s stock price outlook
On a year-to-date basis, ConocoPhillips’s stock price has fallen 5.3%. However, the S&P 500 Index gained 19.8%. The SPDR S&P Oil & Gas Exploration & Production ETF (XOP) fell 7.7% from last year. XOP tracks key upstream stocks.
The bearish outlook for energy commodities might have dragged the upstream subsector. For the rest of 2019, oil and natural gas could trend fall. If the earnings are in line with analysts’ estimates and management’s previous guidance, we might not see large movement in the stock prices. Also, based on stock prices’ seasonality in the last ten years, we could see weaknesses ahead.
If the Fed reduces interest rates on July 31 and the geopolitical tension between Iran and the West escalates, oil’s bullish sentiments could rise. A wider Brent-WTI spread could favor ConocoPhillips’s income.
Mean target price and analysts’ ratings
For ConocoPhillips, analysts’ mean target price is ~$78, which implies a potential upside of ~32.1% based on its last closing price. EOG Resources and Occidental Petroleum’s target prices suggest potential upsides of 34.1% and 18.6%, respectively. On July 18, RBC reduced ConocoPhillips’s target price by $2 to $79. The previous day, Bank of America Merrill Lynch increased its rating to “buy.” Earlier in July, J.P. Morgan reduced its target price by $3 to $80.