ConocoPhillips: Time to Build New Positions

Buy-recommended ConocoPhillips (COP) offers unlevered appreciation potential of 37% to estimated net present value [NPV] of $124 a share. First quarter results released today matched our expectations from three months ago for production, cash flow and earnings with higher oil price boosting production profits while reducing refining profits. Projected volumes along with current futures prices promise a continuing high level of unlevered cash flow (Ebitda).

NPV is supported by projected cash flow capitalized at unlevered multiples (PV/Ebitda) related to reserve life (Adjusted R/P). Latest oil and gas reserves are concentrated some 61% in North America and Europe, presumed to be politically safer, and 25% in the promising Russia and Caspian areas.

While COP stock is in an uptrend with the current quote above the 200 day average, it lags behind the stocks of independent oil and gas producers. Pressure on downstream margins may be part of the reason on a short-term basis, but eventually the full impact of higher crude oil price gets passed along. As a result, we believe it is timely for investors to build new positions in COP or boost existing positions. We carry the stock at a double unlevered weight of 6.4% in the illustrative McDep Energy Portfolio of 27 buy recommendations.

Originally published on April 24, 2008.

Comments

[jjason]

Another article that means nothing. As I look at the 12 month chart, I see COP has dropped below $80.00 six times.

[fxtrader07]

a smart way to play this, imho: long Cop and short USO and hold on for at least 2-3 years or a total 25% gain (measured in relative movement of the cop and uso, so either uso down 20% and cop up5%, or uso flat and cop up 25% etc) - whatever comes first. as the proceeds from shorting uso pay for a large part of the Cop purchases, only a quite limited amount of capital is tied up, making the play all the more interesting.