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Proprietary Data Insights Financial Pros’ Top Oil & Gas E&P Stock Searches in the Last Month
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Pros Pick Their Top 5 Oil & Gas E&P Stocks
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Before the pandemic, the world was awash with commodities. Crude oil could barely breach $50. Today, it safely sits near $80 a barrel, with demand outpacing supply. Many cowboy drillers in the U.S. exited the scene, leaving oil fields to the big players. At the top of the list is ConocoPhillips (COP), which made waves recently when it announced plans to acquire Marathon Petroleum, catching the eye of every financial pro. In the oil and gas world, it’s the big guys with fortress balance sheets that survive. And there’s good reason to believe ConocoPhillips’ latest move sets shareholders up for a multi-year windfall. ConocoPhillips’ Business Founded over a century ago, ConocoPhillips has grown into a leading light in the energy sector. Known for its innovative approach to oil and natural gas exploration and production, the company today stands as a prime example of resilience and strategic growth in a challenging industry. ConocoPhillips serves a broad array of customers globally, from giant industrial companies to local utilities, offering products that range from crude oil to refined energy solutions. Noteworthy is the company’s commitment to sustainable energy practices, emphasizing its role in shaping a responsible future for the industry. The company segments its business by geography, measuring profitability and production rather than revenues.
Source: COP Q1 2024 Supplemental Presentation Total production was up slightly, with natural gas seeing the largest increase.
Source: COP Q1 2024 Supplemental Presentation While crude prices have increased, natural gas prices fell, hitting earnings for Q1. However, crude is where the real money is made. In a recent strategic move, ConocoPhillips acquired Marathon Oil, a deal that not only expands its resource base but also enhances its operational capabilities across North America. Financials
Source: Stock Analysis ConocoPhillips’ revenues live and die by energy prices. The surge in commodities in 2021 and 2022 helped achieve record-breaking revenues and profits. Though well off the highs, the company continues to produce energy with excellent margins and an enviable amount of cash. In fact, the free cash flow margin sits just north of 14% (9% by other measures), giving it plenty of money to keep its 2.7% dividend and complete the acquisition of Marathon. Valuation
Source: Seeking Alpha Compared to its peers, ConocoPhillips trades at a reasonable valuation, on par with Canadian Natural Resources (CNQ), above Devon Energy (DVN), but below Hess (HES). Trading at 6.8x operating cash flow and 16.0x free cash flow, it’s got plenty of money to spend on acquisitions, dividends, and share buybacks. Growth
Source: Seeking Alpha Like many of its peers, ConocoPhillips’ revenues suffered from falling energy prices. Only Hess managed to escape with flat sales year over year. What’s really impressive is ConocoPhillips’ 77.5% 3-year free cash flow average growth rate, well above any of its competitors. Profitability
Source: Seeking Alpha Interestingly, ConocoPhillips doesn’t deliver substantially higher margins than its peers. This speaks to its prudent fiscal management, which has enabled it to achieve solid returns on equity, assets, and total capital. Our Opinion 9/10 ConocoPhillips is the top in the E&P space with the cash and willingness to expand. This is crucial to survival when banks are less likely to lend to drillers. We expect Marathon’s assets to be immediately accretive, with corporate overlap savings realized over the next few years. |
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