Is ConocoPhillips Still a Good Investment?

With shares of ConocoPhillips (NYSE:COP) trading at around $62.32, is COP an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

ConocoPhillips has been working hard to shed low-margin operations. It’s using the freed up capital to invest in higher-margin operations. This is a simple yet effective approach, but will it be enough to send the stock price higher?

On the bullish side, the Energy Information Administration (AMEX:EIA) expects an increase in crude oil prices, which would be a positive for ConocoPhillips. Many analysts are also calling for global monetary policy to assist global growth. Other potential positives are if Europe bottoms and China rebounds. However, there can be a lot of hope found in the previous sentence. On a company-specific basis, ConocoPhillips is looking to increase production, and it expects margin improvement between 3 and 5 percent over the next five years. It should also be noted that advanced technologies have the potential to lead to increased oil extraction.

On the bearish side, the era of super-low interest rates might be coming to an end. If this trend continues, then the stock market isn’t likely to perform as well as it has been over the past several years. This would be a negative for ConocoPhillips, which declined approximately 60 percent during the financial crisis of 2008/2009. This is in comparison to an approximately 40 percent decline for Chevron Corporation (NYSE:CVX) and an approximately 30 percent decline for Exxon Mobil Corporation (NYSE:XOM). This isn’t to say that the market will suffer such a severe drop, but these numbers should be noted for those who are focused on capital preservation.

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While rising interest rates will negatively impact the stock market, the biggest concern for ConocoPhillips is weak global demand. Who’s to say Europe is bottoming? Where is the proof in this statement? In regards to China, growth is slowing. It’s only a slight decline, but it’s still not the right direction.

As far as the dollar goes, it’s not as important as in the past thanks to energy independence. This is now a supply and demand story more than anything else.

In regards to company culture and leadership, they’re both impressive at ConocoPhillips. According to Glassdoor.com, employees have rated their employer a 3.5 of 5, and 93 percent of employees approve of CEO Ryan M. Lance.

Let’s take a look at some important numbers prior to forming an opinion on this stock.
T = Technicals Have Been Strong

ConocoPhillips has performed well over the past three years. However, the pace has slowed.

1 Month Year-To-Date 1 Year 3 Year
COP 0.62% 9.82% 20.78% 85.90%
XOM 0.46% 7.07% 16.10% 64.23%
CVX -0.78% 14.33% 24.65% 89.58%

E = Equity to Debt Ratio Is Normal

The debt-to-equity ratio for ConocoPhillips is close to the industry average of 0.50.

Debt-To-Equity Cash Long-Term Debt
COP 0.44 5.45B 21.67B
XOM 0.08 6.21B 13.41B
CVX 0.10 19.05B 14.14B

E = Earnings Have Been Steady

The numbers below can be confusing due to the spinoff. In this case, it’s better to look at the quarterly numbers on a sequential basis.

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Fiscal Year 2008 2009 2010 2011 2012
Revenue ($) in millions 246,182 152,840 198,655 251,226 62,004
Diluted EPS ($) -11.16 3.24 7.62 8.96 6.72

Looking at the last four quarters on a sequential basis, revenue and earnings have been a bit inconsistent, but the numbers have still been solid.

Quarter Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012 Dec. 31, 2012 Mar. 31, 2013
Revenue ($) in millions 58,354 15,166 15,089 16,366 14,651
Diluted EPS ($) 2.27 1.80 1.46 1.16 1.73

Now let’s take a look at the next page for the Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

Conclusion

ConocoPhillips is trading at 10.5 times earnings, costs are being cut, and the stock has been a long-term winner. On the other hand, if you cut out all the noise and simply look at supply and demand, this doesn’t seem to be the best time to invest in ConocoPhillips. Despite Exxon Mobil yielding 2.80 percent and ConocoPhillips yielding 4.20 percent, Exxon Mobil still looks to be the better option.

ConocoPhillips is currently a neutral WAIT AND SEE.

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All content posted should not be considered professional advice. Please do your own research and consult with a professional financial advisor before making any investment decisions. I don’t have any positions in this stock.

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