ConocoPhillips (COP) has been a laggard in my portfolio so far in 2012, even as the market has rallied significantly over the last few months. However, given some of the positive catalysts I see on the horizon, I believe COP will outperform the market for the rest of the year.
Possible catalysts for ConocoPhillips
- Their next quarterly earnings report comes out Monday. Consensus estimates are for $2.08 a share. The company has easily beat earnings estimates the last three quarters.
- The company is splitting off its refining and marketing business on May 1st. Shareholders will get 1 share of Phillips 66 for every two shares of COP. This should allow better focus on each business and unlock shareholder value and higher multiples.
- Given the split, recent history and prodigious cash flow; I would look for the company to hike its dividend by at least 10% by the end of year.
- The company has a small footprint in the Middle East so any turmoil (Ex,..Israel/Iran) will not affect its assets, but the stock will pop if oil prices rise as a result.
- November could bring in a new administration (50/50 chance in my opinion) that is friendlier to the energy sector and less aggressive in trying to hike taxes on dividends. Both would be helpful to this stock.
4 reasons the stock is still undervalued at under $73 a share.
- The stock yields 3.6%, has an A rated balance sheet and sells for less than five times operating cash flow.
- The stock sells for less than 8 times forward earnings and just 40% of annual revenue.
- The median analyst's price target for the 14 analysts that cover the stock is $83. S&P has a "Buy" rating and a price target of $90 on the stock.
- Even as COP has not participated fully in the rally so far in 2012, consensus earnings estimates for FY2012 and FY2013 have risen significantly over the past two months.
Disclosure: I am long COP.
