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 |
