founded: 1875, NYSE code: COP, homepage: www.conocophillips.com
Overview
Measured by the market capitalization, Houston, Texas headquartered ConocoPhillips is the third largest integrated energy company in the United States. Of non-government controlled companies worldwide, it is also the sixth largest proved reserves holder and the World’s fifth largest refiner.
In 2006, ConocoPhillips employed more than 38,000 employees in over 40 countries including such locations as Equador and Peru in South America, Ireland, Czech Republic and Norway in Europe, Indonesia, Singapore and Malaysia in Asia and many more.
Of the four core worldwide business activities petroleum exploration was responsible for about 63% of the last year income and the petroleum refining for 29%. The remaining 8% was contributed by natural gas and oil gathering investments together with profits made by ConocoPhillips’ chemicals and plastic division.
Analysis of December 2006 financial results:
- Market Cap: Depending on the daily prices of the company’s stock the total market capitalization is around US$135 billion over 1.61 billion of issued shares
- Shareholders’ Equity: US$82.6 billion making the stock’s book value approx. US$51.35 per share (38% growth on FY 2005)
- Earnings per share: US$9.67 making the average EPS growth in last 3 years about 17%
- Return on Equity: 18.8%, averaging around 15.3%pa in last 5 years
- Balance Sheet: Negative working capital of US$-1.37 billion (ie. US$ -0.85 per share) versus long term debt of US$23 billion
Sharemaket’s valuation:
Average COP’s Price to Earnings ratio of 11 suggests the share price around US$106.3 (US$9.66 EPS x 11 P/E)
CYCLICAL STOCK:
- Conservative forecast of average EPS growth in next 10 years: 8%
- Share price in 10 years time: about US$230 (EPS in year 10 based on forecasted yearly EPS growth times average P/E)
- Total shareholders return in 10 years time: US$260 (share price of US$230 plus US$30 of the 10 years worth of dividends if the current payout ratio of about 20% persists)
- Rate of Return in next 10 years based on the beginning of January 2008 stock price of US$88.25 per share: 11.4%pa
Pros and cons:
+++ One of the world leaders in the oil and petrochemical business
+++ Constantly showing good levels of ROE and book value per share ratios
+++ Reasonably strong balance sheet ie. if required, total debt could be paid off using about 1.5 year of net earnings
— Cyclical nature of the business pretty much guarantee high levels of earnings volatility
— Negative short term cash position as reported by the latest balance sheet
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