Goldman Sachs Steps To The Sidelines On ConocoPhillips Amid Continued Outperformance

Following strong outperformance since 2017 of ConocoPhillips COP, analysts considered share price appreciation and other factors in Tuesday’s downgrade.

The Analyst

Goldman Sachs analyst Neil Mehta downgraded ConocoPhillips from Buy to Neutral with a price target of $81.

The Thesis

The company has outperformed U.S. majors by 48 percent since 2017. Despite furthered optimism regarding the company’s strategy and execution, Mehta recognizes attractive upside elsewhere for several reasons.

ConocoPhillips previously outlined a $5 billion to $8 billion asset sale program in 2016, which was created to reduce debt, fund capital returns and improve the asset portfolio, according to Mehta.

“Since 2017, the company has completed a number of divestments, the largest being the sale of the Deep Basin and Foster Creek Christina Lake assets for $13.3 bn, rapidly accelerating COP’s debt reduction timeline," he wrote in a note.

Additionally, debt levels peaked in 2016, amounting to roughly $27 billion. But following larger than anticipated asset sales and strong cash generation, the company has reduced its debt to a mere $15 billion, Mehta reported.

“We view favorably COP’s strong cash generation potential underpinned by accelerated production profile from its high-margin unconventionals. We believe COP offers a peer-leading capital returns profile, driven by a disciplined and sustainable capital allocation program," Mehta said.