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A pure-play oil and natural gas producer, ConocoPhillips (NYSE: COP) stock is down 12% since the beginning of this year, compared to a 27% return of the S&P 500 over the same period. In comparison, COP’s peer Exxon Mobil stock (NYSE: XOM) is up 14% this year. Another competitor’s stock is also up this year. See Chevron’s Stock Up 10%, What’s Next?

So what’s happening with ConocoPhillips stock?

In the third quarter, the company saw lower natural gas prices and increased costs offset higher oil production volumes. The company said it expects continued volatility in Q4 from its operations in the Permian Basin due to pipeline maintenance and third-party offtake constraints. Going forward, ConocoPhillips raised production guidance for Q4 to 1.99 million to 2.03 million barrels of oil equivalent per day (MBOED). That said, it would be prudent for investors to monitor how these projections play out and follow efforts to ensure its sustainability commitments are met. It will prove crucial to ConocoPhillips’ success that the company adheres to cost discipline, invests in innovation, and makes strategic acquisitions like the recent one with Marathon Oil. Separately, if you want upside with a smoother ride than an individual stock, consider the High Quality portfolio, which has outperformed the S&P, and clocked >91% returns since inception.

ConocoPhillips has set itself up for a strong 2025, thanks to its strategic acquisition of Marathon Oil in late November. The deal is valued at $22.5 billion, including $5.4 billion in assumed debt. The deal adds over two billion barrels of high-quality, low-cost resources to ConocoPhillips’ portfolio, with an estimated cost of supply below $30 per barrel. COP expects the acquisition to be immediately accretive to earnings, free cash flow, and return of capital per share. Furthermore, it anticipates capturing significant synergies, exceeding $1 billion over the next 12 months, up from our initial estimate of $500 million.

In Q3, ConocoPhillips posted total revenue of $13.6 billion, down from the $14.9 billion made in the same quarter last year. It also reported third-quarter 2024 earnings of $2.1 billion, or $1.76 per share, compared with third-quarter 2023 earnings of $2.8 billion, or $2.32 per share. Earnings decreased primarily due to the impact of lower prices. The company’s average realized price fell 10% year-over-year (y-o-y) to $54.18 per barrel of oil equivalent (boe) in Q3. This was mostly due to a plunge in realized natural gas prices in the lower 48 states in the quarter; nearly half of COP’s total production volumes are natural gas or natural gas liquids.

COP’s earnings were adversely affected by a milder-than-expected winter that lowered demand for heating fuel. Despite the reduced demand, total company production for the quarter rose to 1.917 mboed, up 6% y-o-y. Lower 48 production averaged 1.14 mboed with 781 mboed in the Permian, 246 mboed in the Eagle Ford, and 107 mboed in the Bakken. The Lower 48 comprises the three U.S. shale basins (Eagle Ford, Bakken, Permian Basin) and the Gulf of Mexico production, but not Alaska. Almost 55% of the total output comes from production in the Lower 48 of which 39% of the output comes from the Permian Basin itself.

COP is one of a handful of stocks that have increased their value in each of the last 3 years, but that still wasn’t enough for it to consistently beat the market. Returns for the stock were 87% in 2021, 74% in 2022, and 2% in 2023. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is considerably less volatile. And it has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment around rate cuts and multiple wars, could COP face a similar situation as it did in 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?

We forecast COP’s Revenues to be $59 billion for the fiscal year 2024, up 1% y-o-y. Looking at the bottom line, we now forecast EPS to come in at $7.74. Given the changes to our revenues and earnings forecast, we have revised our COP’s Valuation to around $115 per share, based on $7.74 expected EPS and a 14.8x P/E multiple for the fiscal year 2024 – almost 15% higher than the current market price (Dec 16).

It is helpful to see how its peers stack up. ConocoPhillips Peers shows how COP stock compares against peers on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 12/17/2024
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.