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The bullish case for ConocoPhillips (NYSE:COP) is based on a plethora of encouraging company-specific tailwinds and favorable industrywide dynamics, according to BMO Capital Markets.
The Analyst
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Analyst Phillip Jungwirth initiated coverage of ConocoPhillips' stock with an Outperform rating and $78 price target.
The Thesis
BMO's bullish case for the energy stock is based on the following factors, Jungwirth said in a Monday note:
- Expectations for "robust" free cash flow of $6.4 billion in 2018 and $6.3 billion in 2019.
- Investors can expect to see increased stock buybacks and dividend growth through at least 2022.
- Around 70 percent of the company's production is tied to Brent, which gives it better exposure versus the 30-percent average for large cap peers.
- Conoco's net income and cash flow per barrel and return on capital employed should come in better than the group average.
- The company's near-term production growth outlook of 1,235MBOE/day is strong and implies a 7.4-percent growth rate. The momentum should continue through 2019 with an expected 6.3-percent production growth rate.
- The company's low capital-intensive asset base supports longer-term production growth.
- The lower 48 business segment has historically underperformed across multiple financial metrics, but natural gas divestitures coupled with a strong growth outlook in Eagle Ford and Delaware should improve cash margins and profitability.
- Conoco also boasts one of the best Bakken positions when considering its scale and productivity.
- The Alaska segment should see "modest" growth, as the company is the largest producer in the state on a net basis.
- The company's LNG and oil sands assets are expected to see stable production over the coming years and generate meaningful free cash flow.
- Conoco's stock looks attractive based on multiple metrics, including dividend yield, EV/EBITDA, P/E, P/CF and free cash flow yield.
Price Action
Shares of ConocoPhillips were trading higher by 1.86 percent at the time of publication Monday afternoon.
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Photo courtesy of ConocoPhillips.
Crypto Whales Are Loading Up — Are You?
New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.