Introduction
ConocoPhillips (NYSE: COP) is currently trading at $102.77 per share and is a top holding in the Schwab U.S. Dividend Equity ETF (SCHD) with a 4.6% portfolio weighting. Given SCHD’s popularity among dividend investors, COP’s 3.15% yield makes it an attractive pick.
Despite a 250% gain over the last five years, ConocoPhillips has dropped 18% over the past year. Is now the right time to buy? This analysis will assess its latest financials and apply discounted free cash flow (DCF), comparable company valuation, dividend discount model (DDM), and Ben Graham’s intrinsic value model to determine if COP is fairly valued or undervalued.
ConocoPhillips Financial Overview
Key Metrics:
- Market Cap: $130 billion
- Price-to-Earnings (P/E) Ratio: 13.17 (below the market average of 28.39)
- Earnings Per Share (EPS): $7.81
- Beta: 1.11 (moderate volatility)
- Analyst Price Target: $128 (suggesting potential upside)
- Dividend Yield: 3.15%, paying $3.11 per share
- Dividend Payout Ratios:
- Profit-Based Payout: 39%
- Free Cash Flow-Based Payout: 42%
Revenue and Profitability:
- Annual Revenue: $55.24 billion, flat year-over-year, but improved compared to 2021 and 2020.
- Net Income: $9.95 billion, down from the previous year.
- Free Cash Flow (FCF): $9.25 billion, higher than 2022 figures.
- Operating Cash Flow (OCF): Up year-over-year, despite higher CapEx spending.
The company has repurchased shares, supporting shareholder value.
Valuation Analysis
Discounted Free Cash Flow (DCF) Model:
DCF values stocks by estimating future free cash flows and discounting them to the present.
Inputs:
- Revenue Growth Projections: 5% annually (based on estimates of $60-$61 billion in future years).
- Net Income Margins: 18%
- Discount Rate: 8%
Based on these assumptions, COP’s intrinsic value is approximately $128 per share, suggesting it is undervalued at current levels.
Dividend Discount Model (DDM):
DDM evaluates stocks based on dividend growth. If COP maintains 6% or higher dividend growth, it supports a buy rating. Historical dividend increases reinforce this model's conclusion.
Ben Graham’s Intrinsic Value Formula:
Ben Graham’s valuation approach incorporates earnings growth and bond yields.
- AAA Bond Yield: 5.32%
- Expected Growth Rate: 8.62%
Applying Graham’s model places COP’s intrinsic value at approximately $110 per share, supporting a buy case.
Comparable Company Model:
To assess COP’s valuation relative to industry peers, we compare key metrics with:
- ExxonMobil (XOM)
- Chevron (CVX)
- Occidental Petroleum (OXY)
Key Comparisons:
- Revenue Growth: COP ranks second-highest among its peers.
- Profit Margins: COP leads the group with an 18% margin.
- Price-to-Earnings (P/E) Ratio: Lowest among competitors, indicating potential undervaluation.
- EV/EBITDA: Near the lower end of the industry average, reinforcing a fair valuation.
After factoring in these comparisons, COP’s valuation aligns around $108 per share, suggesting it is slightly undervalued.
Conclusion: Is COP a Buy?
All three valuation models suggest ConocoPhillips is an attractive buy:
- DCF Model estimates intrinsic value around $128 per share.
- Ben Graham’s Formula suggests $110 per share.
- Comparable Company Analysis values COP around $108 per share.
With a strong dividend payout, share buybacks, and competitive profit margins, COP appears undervalued at its current price.
Final Verdict: COP is a buy based on fundamental analysis, with strong long-term potential.
https://youtu.be/YJoAjtcUsYc?si=Yl9xaPQYIDhzGuTv
Introduction
ConocoPhillips (NYSE: COP) is currently trading at $102.77 per share and is a top holding in the Schwab U.S. Dividend Equity ETF (SCHD) with a 4.6% portfolio weighting. Given SCHD’s popularity among dividend investors, COP’s 3.15% yield makes it an attractive pick.
Despite a 250% gain over the last five years, ConocoPhillips has dropped 18% over the past year. Is now the right time to buy? This analysis will assess its latest financials and apply discounted free cash flow (DCF), comparable company valuation, dividend discount model (DDM), and Ben Graham’s intrinsic value model to determine if COP is fairly valued or undervalued.
ConocoPhillips Financial Overview
Key Metrics:
Revenue and Profitability:
The company has repurchased shares, supporting shareholder value.
Valuation Analysis
Discounted Free Cash Flow (DCF) Model:
DCF values stocks by estimating future free cash flows and discounting them to the present.
Inputs:
Based on these assumptions, COP’s intrinsic value is approximately $128 per share, suggesting it is undervalued at current levels.
Dividend Discount Model (DDM):
DDM evaluates stocks based on dividend growth. If COP maintains 6% or higher dividend growth, it supports a buy rating. Historical dividend increases reinforce this model's conclusion.
Ben Graham’s Intrinsic Value Formula:
Ben Graham’s valuation approach incorporates earnings growth and bond yields.
Applying Graham’s model places COP’s intrinsic value at approximately $110 per share, supporting a buy case.
Comparable Company Model:
To assess COP’s valuation relative to industry peers, we compare key metrics with:
Key Comparisons:
After factoring in these comparisons, COP’s valuation aligns around $108 per share, suggesting it is slightly undervalued.
Conclusion: Is COP a Buy?
All three valuation models suggest ConocoPhillips is an attractive buy:
With a strong dividend payout, share buybacks, and competitive profit margins, COP appears undervalued at its current price.
Final Verdict: COP is a buy based on fundamental analysis, with strong long-term potential.
https://youtu.be/YJoAjtcUsYc?si=Yl9xaPQYIDhzGuTv