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Boosting Our Fair Value Estimate on ConocoPhillips

Management's plans seem to be a prudent way to ensure the health of the balance sheet and the safety of the dividend while preserving some upside to potential oil price increases.

Securities In This Article
ConocoPhillips
(COP)

At its annual analyst day,

Management’s plans seem to be a prudent way to ensure the health of the balance sheet and the safety of the dividend while preserving some upside to potential oil price increases. Previously, ConocoPhillips tried to have it all--a high dividend yield and growth--but that proved unsustainable as oil prices retreated from $100/barrel levels. While it could pursue the strategy of its E&P peers and prioritize growth, its size would work against it, leaving its growth rates to pale in comparison. Instead, leveraging its much larger and more diverse asset base to ensure a steady payout for energy investors means it is capitalizing on its strengths while differentiating itself from the bulk of its peer group. Incorporating the lower capital intensity into our model increases our fair value estimate to $45 from $39. Our no-moat rating remains intact.

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About the Author

Allen Good, CFA

Director
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Allen Good, CFA, is a director, Europe, for Morningstar*. Based in Amsterdam, he covers the oil and gas industries as well as manages a team of multi-industry analysts. He is also chair of the Morningstar Research Services Economic Moat Committee, a group of senior members of the equity research team responsible for reviewing all Economic Moat ratings issued by Morningstar. In this role, he is responsible for ensuring consistent application of Morningstar’s Economic Moat methodology across sectors and regions as well as updating and revising the methodology. His specialty is global integrated oils such as Exxon, Chevron and Shell and US independent refiners such as Valero and Marathon Petroleum. He also contributes to developing hydrocarbon price and petroleum product margin forecasts used in valuation models.

Before joining Morningstar in 2008, He performed merger and acquisition advisory work for a middle-market investment bank. Before that, he spent several years at Black & Decker in various operational roles, primarily focused on manufacturing and distribution.

Good holds a bachelor’s degree in business from the University of Tennessee and a master’s degree in business administration from Kenan-Flagler Business School at the University of North Carolina. He also holds the Chartered Financial Analyst® designation.

* Morningstar Holland BV (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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