BofA Adds ConocoPhillips To US1 List

• ConocoPhillips COP shares are down 22 percent since April 21, even after recording a small recovery so far in October.
• BofA Merrill Lynch’s Doug Leggate maintained a Buy rating on the company, while raising the price target from $74 to $77.
• In view of ConocoPhillips’ disposals, growth and capital flexibility, the company has been added to the US1 list, Leggate mentioned.

Although ConocoPhillips is not “the highest beta name in the space,” it does have sustainable dividend, an advantaged capital cycle and option value from portfolio restructuring, analyst Doug Leggate said.

The combination of these differentiates ConocoPhillips in the face of “what looks increasingly like a bottoming process of this oil cycle.” The company has been added to the BofAML US1 list.

ConocoPhillips stands apart from its peers on account of stock-specific catalysts. Leggate believes that material asset sales could reach $8bn-$10bn, which constitutes about 15 percent of the company’s current market cap, “but with unique leverage to an oil recovery and the highest dividend of the US oils that pays investors to wait.”

Leggate expects ConocoPhillips’ capital flexibility to hit an inflection point in 2016, with new projects commencing at a time when spending declines 20 percent from the run rate of $11 billion in 2015.

In the report BofA Merrill Lynch noted, “Together we believe a step change in long life production kick starts another round of portfolio hi-grading, including a wholesale exit from deep water exploration that our estimates suggest can realize $3bn from undeveloped resource value but ultimately lowers exposure to another round of long-dated spending commitments.”

Leggate believes that while ConocoPhillips’ stock has “conservative exposure to an oil recovery,” the company offers a peer leading dividend yield.