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Here's Why ConocoPhillips (COP) Stock Gains 52% in a Year

Zacks Equity Research
·4-min read

ConocoPhillips’ COP shares have gained 52% in the past year compared with the industry’s 33% growth.

The Zacks Rank #3 (Hold) company has witnessed upward earnings estimate revisions for 2022 and 2023 in the past 30 days. COP is expected to see earnings growth of 142% in 2022.

 

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

 

Let’s delve into the factors behind the stock’s price appreciation.

What’s Favoring the Stock?

The West Texas Intermediate (WTI) crude price, currently trading higher than the $80-per-barrel mark, improved significantly in the past year. Strong oil prices are boons for ConocoPhillips’ operations as it holds a bulk of acres in the three big oil-rich unconventional plays — Eagle Ford shale, Delaware basin and Bakken shale.

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In the Eagle Ford shale, ConocoPhillips drilled more than 1,600 wells, which could provide access to huge oil-equivalent potential reserves. Moreover, in the Bakken shale, COP continues to develop and implement innovative methods and technologies to gain further improvements in developing 750 identified undrilled locations. The company’s production outlook seems bright as it has decades of low-cost premium drilling sites in those resources.

For 2022, ConocoPhillips projects its production at 1.74 million barrels of oil equivalent per day (MMBoe/d), suggesting an improvement from 1.6 MMBoe/d reported last year. For the third quarter, ConocoPhillips expects production of 1.70-1.76 MMBoe/d. Higher production will aid the company’s bottom line.

ConocoPhillips has a sound balance sheet, with significantly lower debt exposure than the composite stocks belonging to the industry. Its debt-to-capitalization ratio of 0.25 is lower than the industry average of 0.33. Notably, the company generated cash from operating activities of $13 billion in the first half of 2022, which reflects strong operations.

ConocoPhillips’ focus on returning capital to shareholders is commendable. COP revised higher its expected 2022 return of capital to shareholders. The new guidance is at $15 billion, reflecting an increase from the previously mentioned $10 billion. The incremental returns to stockholders will get distributed through share repurchases and VROC tiers. Notably, COP paid out $1.9 billion in ordinary dividends and VROC, and repurchased $3.7 billion of shares in the first half of this year.

Risks

Although the long-term view seems lucrative, ConocoPhillips is exposed to oil price volatility that makes things challenging for the company. Also, increasing expenses are hurting the upstream energy player’s bottom line.

Key Picks

Investors interested in the energy sector might look at the following companies that presently sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Marathon Petroleum Corporation MPC is a leading independent refiner, transporter and marketer of petroleum products. MPC repurchased shares worth $4.1 billion in the May-July period of 2022 and completed more than 80% of its target of buying back common stock worth $15 billion.

Marathon Petroleum has witnessed upward earnings estimate revisions for 2022 and 2023 in the past 60 days. The company has a Zacks Style Score of A for Value, Growth and Momentum. MPC is expected to see earnings growth of 788.6% in 2022.

Chevron Corporation CVX is one of the largest publicly traded oil and gas companies in the world. Chevron recently raised its quarterly dividend by 6% to $1.42 per share (or $5.68 per share annualized) and promised $5-$15 billion worth of buybacks each year.

Chevron has witnessed upward earnings estimate revisions for 2022 and 2023 in the past 60 days. The company currently has a Zacks Style Score of A for Growth. CVX is expected to see earnings growth of 126% in 2022.

Range Resources Corporation RRC is among the top 10 natural gas producers in the United States. RRC’s board of directors authorized a $500-million share repurchase program, which is likely to be funded with the company’s free cash flow.

Range Resources has witnessed upward earnings estimate revisions for 2022 and 2023 in the past 30 days. The company currently has a Zacks Style Score of A for Growth and Momentum, and B for Value. RRC is expected to see earnings growth of 171.8% in 2022.


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Chevron Corporation (CVX) : Free Stock Analysis Report
 
ConocoPhillips (COP) : Free Stock Analysis Report
 
Range Resources Corporation (RRC) : Free Stock Analysis Report
 
Marathon Petroleum Corporation (MPC) : Free Stock Analysis Report
 
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Zacks Investment Research