A Closer Look at the Fundamentals of ConocoPhillips (COP)

Shares of ConocoPhillips (COP) jumped 1.4 % Friday, bringing their 52 week performance to 60.0%. The stock seems to be fairly valued in terms of traditional metrics, but in this day in age, we believe that a complete stock analysis should also take into account the company's strong growth indicators and mixed market sentiment.

ConocoPhillips explores for, produces, transports, and markets crude oil, bitumen, natural gas, liquefied natural gas (LNG), and natural gas liquids worldwide. The large-cap Energy company is based in Houston, United States and has 9,400 full time employees.

COP's P/E Ratio Is Better Than the Sector Average

Compared to the Energy sector's average of 9.11, ConocoPhillips has a trailing twelve month price to earnings (P/E) ratio of 8.5 and an expected P/E ratio of 9.1. P/E ratios are calculated by dividing the company's share price by its trailing 12 month or forward earnings per share, which stand at $13.91 and $12.93 respectively.

Earnings represent the net profits left over after subtracting costs of goods sold, taxes, and operating costs from the company's recorded sales revenue. One way of looking at the P/E ratio is that it represents how much investors are willing to pay for every dollar's worth of the company's earnings. Since ConocoPhillips's P/E ratio is lower than its sector average, we can deduce that the market is undervaluing the company's earnings.

COP Has an Alarming P/B Ratio

The price to book (P/B) ratio of a company is a comparison of the company's market capitalization versus its net asset, or book value. A ratio lower than 1 tells you that the equity market is undervaluing the book value of the company's assets, and ratios higher than 1 tell you that the equity markets are overvaluing the company in terms of its assets.

Of course, a company is worth much more than its assets alone, so the focus on P/B ratio is mainly to enable investors to single out undervalued securities that offer a margin of safety. Since ConocoPhillips's P/B ratio of 3.0 is higher than its sector average of 1.45, such a margin of safety does not exist for the stock.

COP Is Generating Cash

ConocoPhillips has decent free cash flows. This represents the actual cash that the company is generating from its sales revenues, minus its re-investments in the business (capital expenditures). The company's operating cash flows have an average growth rate of 98.6%, compared to -8.0% for capital expenditures. From the table below we can also see that the free cash flows has an average growth rate of 6609.0% and a coefficient of variability of 108.1%:

Date Reported Cash Flow from Operations ($ MM) Capital expenditures ($ MM) Free Cash Flow ($ MM) YoY Growth (%)
2021-12-31 16,996 -5,324 11,672 13316.09
2020-12-31 4,802 -4,715 87 -98.05
2019-12-31 11,104 -6,636 4,468 n/a

ConocoPhillips's Is a Profitable Business

If you are looking to make COP a long term investment, it's essential that you understand the viability of its business through a study of its margins. Gross margins tell you how much the company makes in profit when only the costs directly related to producing the goods or delivering the service are taken into account. Operating margins, on the other hand, factor in overhead costs so they tell you how effectively ConocoPhillips is run.

ConocoPhillips's Gross Margins

Date Reported Revenue ($ MM) Cost of Revenue ($ MM) Gross Margins (%) YoY Growth (%)
2021-12-31 45,828 31,060 32.22 619.2
2020-12-31 18,784 17,943 4.48 -84.34
2019-12-31 32,567 23,254 28.6 n/a

ConocoPhillips's Operating Margins

Date Reported Total Revenue ($ MM) Operating Expenses ($ MM) Operating Margins (%) YoY Growth (%)
2021-12-31 45,828 2,697 26.34 374.95
2020-12-31 18,784 2,641 -9.58 -144.19
2019-12-31 32,567 2,252 21.68 n/a

ConocoPhillips's cost of revenue is growing at a rate of 33.6% in contrast to 9.7% for operating expenses. Sales revenues, on the other hand, have experienced a 50.8% growth rate. As a result, the average gross margins growth is 267.4 and the average operating margins growth rate is 115.4, with coefficients of variability of 69.3% and 152.4% respectively.

ConocoPhillips Benefits From Positive Market Signals

The market sentiment regarding ConocoPhillips is overwhelmingly positive. The stock has an average rating of buy and target prices ranging from $167 to $104. COP is trading -14.91% away from its target price of $138.67. 0.8% of the company's shares are tied to short positions, and 83.3% of the shares are held by institutional investors.

Holder Shares Date Reported Percentage Value
Vanguard Group, Inc. (The) 113,171,744 2022-09-29 9% $13,354,265,792
Blackrock Inc. 96,687,431 2022-09-29 8% $11,409,116,858
State Street Corporation 60,768,250 2022-09-29 5% $7,170,653,500
JP Morgan Chase & Company 53,742,623 2022-09-29 4% $6,341,629,514
Capital International Investors 43,372,362 2022-09-29 3% $5,117,938,716
Wellington Management Group, LLP 42,971,424 2022-09-29 3% $5,070,628,032
Capital World Investors 32,919,991 2022-09-29 3% $3,884,558,938
Massachusetts Financial Services Co. 24,361,278 2022-09-29 2% $2,874,630,804
Bank of America Corporation 24,396,191 2022-09-29 2% $2,878,750,538
FMR, LLC 24,118,229 2022-09-29 2% $2,845,951,022
The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.