ConocoPhillips Faces Challenges Despite Promising Acquisition

A pure-play oil and natural gas producer, ConocoPhillips (NYSE: COP) stock has dropped 12% since the start of the year. In contrast, the S&P 500 has posted a 27% return during the same timeframe. Notably, ConocoPhillips’ peer, Exxon Mobil (NYSE: XOM), has seen a positive stock increase of 14% this year. Chevron is another competitor that’s faring well, with its stock up 10%. What does this mean for ConocoPhillips?

Current Situation of ConocoPhillips Stock

In the third quarter, ConocoPhillips experienced struggles due to lower natural gas prices and rising costs, which countered gains from increased oil production. The company anticipates more volatility in Q4 from operations in the Permian Basin, influenced by pipeline maintenance and third-party supply constraints. However, it has raised its production guidance for Q4 to between 1.99 million and 2.03 million barrels of oil equivalent per day (MBOED). Investors should closely observe how these projections unfold while ensuring the company’s sustainability commitments are on track. It remains essential for ConocoPhillips to maintain cost discipline, invest in innovation, and pursue strategic acquisitions, such as its recent deal with Marathon Oil.

Strategic Acquisition Boosts Future Projections

ConocoPhillips has positioned itself for a robust 2025 through its acquisition of Marathon Oil in late November for $22.5 billion, including $5.4 billion in assumed debt. This deal adds over two billion barrels of high-quality, low-cost resources to ConocoPhillips’ portfolio, with an estimated cost of supply below $30 per barrel. The company predicts this acquisition will enhance earnings, free cash flow, and capital returns per share. Additionally, ConocoPhillips expects to achieve significant synergies, exceeding $1 billion over the next year, a notable increase from the initial estimate of $500 million.

Quarterly Performance Overview

In Q3, ConocoPhillips reported total revenue of $13.6 billion, a decline from $14.9 billion in the same quarter last year. The company’s earnings for the third quarter of 2024 stood at $2.1 billion, or $1.76 per share, down from $2.8 billion, or $2.32 per share, in Q3 2023. The decline in earnings was primarily due to falling prices, with the average realized price dropping 10% year-over-year to $54.18 per barrel of oil equivalent (boe). Lower demand for natural gas, driven by a milder-than-expected winter, further impacted results. Despite this, total production rose to 1.917 mboed, up 6% year-over-year, with significant contributions from the Permian Basin, Eagle Ford, and Bakken formations.

Long-Term Stock Performance

ConocoPhillips is one of the few stocks that has increased in value each of the last three years. Nevertheless, these gains have not been enough to consistently beat the market, with returns of 87% in 2021, 74% in 2022, and just 2% in 2023. In contrast, the Trefis High Quality (HQ) Portfolio, comprising 30 stocks, has provided better returns with less volatility. Given current uncertainties in the macroeconomic environment, including potential interest rate cuts and geopolitical tensions, ConocoPhillips may face distinct challenges over the next year.

Revenue and Earnings Forecast

Looking forward, we project ConocoPhillips’ revenues to reach $59 billion for the 2024 fiscal year, reflecting a 1% year-over-year increase. Earnings per share (EPS) are expected to come in at $7.74. Consequently, we’ve revised our valuation of COP to about $115 per share, based on the expected EPS and a P/E multiple of 14.8x for fiscal year 2024, which is nearly 15% higher than its current market price (as of December 16).

How ConocoPhillips Stacks Up Against Peers

To better understand ConocoPhillips’ position, it’s useful to see how it compares against its peers in key performance metrics.

[1] Returns as of 12/17/2024
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.