ConocoPhillips (COP) Stock Optimistic Despite Mixed Earnings Report

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Despite the fact that the oil market crash of 2014 sidelined most sector players, ConocoPhillips (NYSE:COP) struggled considerably more. As one of the top-tier names in American oil, ConocoPhillips lags bigger brothers Exxon Mobil Corporation (NYSE:XOM) and Chevron Corporation (NYSE:CVX).

ConocoPhillips (COP) Stock Optimistic Despite Mixed Earnings Report

The most obvious sign of this dynamic is displayed in the technical charts. Over the trailing five-year period, COP stock has lost 34% in the markets. XOM, on the other hand, has shed less than 5%. CVX is far better, having lost just 0.2%.

The other major indicator is earnings performances. Exxon Mobil and Chevron have both returned to profitability. In sharp contrast, ConocoPhillips has yet to pull it together consistently. That can get investors grumbling, who are patiently waiting for hard results.

Certainly, the latest numbers for COP are not necessarily helpful in that endeavor.

ConocoPhillips’ Earnings Expectations

For the first quarter of fiscal year 2017, the ConocoPhillips earnings per share target was pegged at one cent. This was towards the higher end of the estimate spectrum, which ranges from -21 cents at the low to 14 cents at the high. Unfortunately, the reflected optimism for COP stock did not pan out. The company fell disappointingly short, registering an EPS loss of 2 cents.

Based on the recent ConocoPhillips earnings trend, investors were growing in confidence towards COP stock. Since Q1 of last year (and prior to today’s results), COP had continuously pared losses, beating analysts’ expectations three out of four times. Today’s miss also hurt because it was a genuine, albeit negative, surprise. Rival oil stocks were boosted simply on the basis of rising prices. Analysts anticipated more of the same for COP.

One major silver lining is in the revenue department. Obviously, the downfall of the oil markets has put a dark cloud on the entire industry. That said, sales results for ConocoPhillips were comparatively pedestrian during the first half of 2016. On average, sales missed consensus estimates by 4.5%.

However, by the second half of 2016, the revenue side of the ConocoPhillips earnings picture brightened considerably. In Q4, COP stock exceeded its year-over-year comparison by more than 7%. This time around in Q1, the company pulled in $7.77 billion, beating out the consensus estimate of $7.43 billion.

Another important point to consider is fiscal discipline. Thanks to various strategic moves, business expenses are down significantly on a YOY basis since Q2. Prior to the Q1 release, Wall Street hoped that it would further an earnings beat probability. That didn’t happen, although it lays the groundwork for future success.

Optimism for COP Stock

Still, Wall Street is responding positively to internal changes at ConocoPhillips. For instance, COP stock gapped up ahead of the company’s announcement that it would divest a large chunk of its Canadian oil fields to Cenovus Energy Inc (USA) (NYSE:CVE).

oil price, COP stock, ConocoPhillips earnings
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Source: Source: JYE Financial, unless otherwise indicated

Two pieces of compelling evidence support this bullish view. First, the spot price for West Texas Intermediate shows a “rounding out” pattern since January of 2015. That tells us that most of the bad news is priced in. A further confirmation point is the fact that the oil markets haven’t dropped (yet) below its February 2016 low.

The second argument is that crude oil prices have not decisively fallen below the levels seen in February 2009. Certainly, we’ve seen some scary months when a barrel of crude was in sub-$40 territory. But the markets recovered — and I would argue convincingly so.

Yes, the earnings miss was disappointing — anyone would concede that. However, sales are trending higher and ConocoPhillips is much more fiscally disciplined. Furthermore, management is serious about returning value for shareholders. Finally, the underlying oil market is a tailwind, lifting all boats in the sector.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.


Article printed from InvestorPlace Media, https://investorplace.com/2017/05/conocophillips-cop-stock-earnings-report/.

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