Here's a quick snapshot of a recent E*TRADE page that gives a quote for shares of oil giant ConocoPhillips (COP):
Click to enlarge image.
As you can see, E*TRADE notes that Conoco's trailing 12-months earnings is $9.15. Although this is true, it does not take into account the recent stock spin-off of Phillips 66 (PSX) last month that will greatly reduce earnings. It's an unfortunate fact that many online quote pages fail to take into account stock spin-offs and one-time sources of profit that can greatly skew the profit numbers. I wrote a post awhile back about how Coca-Cola (KO) appeared to be trading at an absurdly low 12 times earnings due to the revaluation of Coca-Cola Enterprises (CCE), which hid the fact that Coke was really trading at around 19 times earnings at the time. But regardless, the buck stops with us: It's our job to make sure that the numbers we are working with are right.
Conoco's true earnings without the Phillips 66 boost is around $1.50 per share quarterly, which comes out to $6.00 annually. At the current price of $51.50 per share, Conoco's true P/E ratio is about 8.5. Compared with Conoco's more integrated peers, Exxon (XOM) is trading at 8.3 times earnings and Chevron (CVX) is trading at 7.1 times earnings.
For what it's worth, Value Line is predicting that Conoco will generate about $1.70 per quarter in 2013. I don't usually like to talk about forward earnings estimates because they are often used to create a justification for cheapness, but I thought that might be worth taking into consideration given that there are not many hard numbers to work with since the Phillips 66 spinoff. If Conoco generates $6.80 annually next year, it will be trading at a forward P/E ratio of 7.5.
While the E*TRADE numbers for Conoco's earnings may not reflect the truth, the good news is that the $0.66 per share quarterly dividend is accurate. At $2.64 per share, that gives investors a current yield north of 5%, which is probably the most appealing aspect of this stock.
It's a shame that website numbers do not possess a mechanism to provide some kind of asterisk to note the presence of aberrant earnings, but ultimately it's our job as investors to figure that out ourselves. There's a difference between an expectation that Conoco earned $6.00 per share rather than $9.00 per share. And I wanted to do my part to make sure that investors know what they're getting when they buy shares of Conoco.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
