UBS Upgrades ConocoPhillips On 'Materially Accretive' Divestiture

Shares of ConocoPhillips COP rose more than 7 percent Thursday after the company announced the sale of its oil sands and western Canadian natural gas assets to Cenovus Energy Inc (USA) CVE for C$17.7 billion ($12.74 billion).

William Featherston of UBS upgraded ConocoPhillips' stock to Buy from Neutral after the divestiture announcement. The analyst also boosted his price target to $55 from $51.

According to Featherston, ConocoPhillips' asset sale puts it in a position to "materially exceed" its 2017 and 2018 asset sale target of $5 billion to $8 billion. The asset sale is also consistent with the company's strategy to reduce its debt to less than $20 billion by the end of 2019 and returning 20 to 30 percent of its operating cash to shareholders.

Years Ahead Of Plan

Given the outsized cash proceeds, ConocoPhillips is now in a position to achieve its 2019 debt target in 2017. Moreover, the company is targeting a $15 billion debt load by the end of 2019.

ConocoPhillips has also doubled the dollar amount allocated towards its share repurchase program to $6 billion. The analyst estimated if oil trades at $60 per barrel, the company's total debt/2018E cash from operations should be 1.7x versus a prior target of around 2x by the end of 2019.

Bottom line, ConocoPhillips divested a low growth and low margin asset that will give the company cash to immediately reduce its debt load.

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