ConocoPhillips Co. (COP). Below are some highlights from the above linked analysis:
Company Description: ConocoPhillips Co. is one of the largest independent oil and gas exploration and production (E&P) companies in the world. The company spun off its downstream assets in May 2012.
Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:
1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number
COP is trading at a discount to 1.) and 4.) above. When also considering the NPV MMA Differential, the stock is trading at a 19.5% premium to its calculated fair value of $51.59. COP did not earn any Stars in this section.
Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:
1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%
COP earned two Stars in this section for 2.) and 3.) above. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. COP earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1934 and has increased its dividend payments for 15 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
1. NPV MMA Diff.
2. Years to > MMA
The NPV MMA Diff. of the $1,236 is below the $2,000 target I look for in a stock that has increased dividends as long as COP has. The stock's current yield of 4.74% exceeds the 2.47% estimated 20-year average MMA rate.
Peers: The company’s peer group includes: BP plc (BP) with a 6.1% yield, Chevron Corp. (CVX) with a 4.2% yield and Exxon Mobil Corporation (XOM) with a 3.3% yield.
Conclusion: COP did not earn any Stars in the Fair Value section, earned two Stars in the Dividend Analytical Data section and did not earn any Stars in the Dividend Income vs. MMA section for a total of two Stars. This quantitatively ranks COP as a 2-Star Weak stock.
Using my D4L-PreScreen.xls model, I determined the share price would need to decrease to $49.72 before COP's NPV MMA Differential increased to the $2,000 minimum that I look for in a stock with 15 years of consecutive dividend increases. At that price the stock would yield 5.9%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $2,000 NPV MMA Differential, the calculated rate is 5.0%. This dividend growth rate is higher than the 2.8% used in this analysis, thus providing no margin of safety. COP has a risk rating of 1.50 which classifies it as a Low risk stock.
COP operates in a volatile, cyclical and capital-intensive segment of the energy industry. In May 2012, COP completed the spin off of its downstream assets into a separate company, Phillips 66 (PSX). I have restated COP's dividend history to eliminate the portion of dividend that is now associated with PSX.
With significant North America production, the dramatic decline in crude oil prices has put pressure on the company's operating results. In late January, COP announced fourth-quarter 2014 results including a net loss of $39 million, or $0.03 per share, down from fourth-quarter 2013 earnings of $2.5 billion, or $2.00 per share. In anticipation of weak 2015 prices, the company further reduced its expected 2015 capital expenditures to $11.5 billion from the $13.5 billion previously announced, with reductions coming primarily from the deferral of onshore drilling and exploration programs, and deferral of major project spending. Even with the spending cuts, COP expects 2 to 3 percent production growth in 2015 from continuing operations, excluding Libya.
The company's free cash flow payout of -1037% (down from 356%) is at an unacceptable level. This is a result of lower cash earnings and increased Capx. To compensate, its latest dividend increase was low compared to past increases. As a result, COP is now trading well above my calculated fair value of $51.59. For now, I will not add to my position, and plan to watch the stock very closely.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I was long in COP (3.2% of my Dividend Growth Portfolio) and long XOM and CVX. See a list of all my dividend growth holdings here.
- Phillips 66 Dividend Stock Analysis
- AFLAC Incorporated (AFL) Dividend Stock Analysis
- Cisco Systems: A 5-Star Very Strong Stock
- P&G Has Paid A Dividend Every Year Since 1891 And Increased It 57 Consecutive Years
- Target Corporation Dividend Stock Analysis
- More Stock Analysis
Tags: COP, BP, CVX, XOM,
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