ConocoPhillips (NYSE:COP) fell in Wednesday and Thursday trading despite beating earnings and revenue estimates. The Houston-based oil producer beat estimates on production levels and plans to cap capital expenditures. Despite a partial recovery in Friday trading, COP stock still sells below pre-announcement levels.
However, investors may want to take a second look at this oil stock. Over time, a focused strategy, its reasonable valuation, and rising geopolitical tensions could lead to a turnaround for ConocoPhillips stock.
COP Stock Fell Despite Beating on Earnings, Revenue
ConocoPhillips reported first-quarter earnings of $1.00 per share, just over 4% higher than the 96 cents per share the company earned in the same quarter last year. This also surpasses Wall Street estimates by 10 cents per share. The company beat on revenues as well, reporting $10.06 billion when analysts had predicted $9.16 billion. The company brought in $8.96 billion in the same quarter last year.
On Wednesday, COP stock initially surged higher on the news, but it ended up falling on the day by over 0.7%. Many blame higher expenses, as the company has sought to increase production. These costs have weighed on ConocoPhillips stock for more than two months.
COP stock suffered last fall, as oil fell to lows of just over $42 per barrel. As oil recovered, COP rallied from its $56.75-per-share low. For a brief time in February, it surpassed $70 per share. COP trades at over $62 per share at the time of this writing.
Recently, COP has expressed a goal to become profitable even if oil falls to the $40 per share range. As a result, it has put many of its non-core assets on the market. Last month, the company agreed to sell oil and gas assets in the British North Sea to Chrysaor for $2.7 billion.
This transformation may have caused some concerns as the stock has sold off in recent weeks. Now, COP stock trades about 12% below the highs of mid-February. Peers such as Hess (NYSE:HES), Apache (NYSE:APA), and Marathon Oil (NYSE:MRO) saw similar declines.
COP Stock Looks More Like a Buy
ConocoPhillips operates in the upstream, or exploration and production, segment of the oil industry. As such, it sees more volatility due to its sensitivity to oil prices. As mentioned earlier, the company is working to make itself profitable even when oil prices fall. For this reason, the recent drop may have created a buying opportunity. Thanks to the lower stock price, COP stock trades at at a price-to-earnings (PE) ratio of just 13.6.
Moreover, geopolitical tensions have risen. Venezuela remains in limbo amid its economic crisis. Also, the Middle East has again become volatile as the U.S. begins a ban on Iranian oil. This has led to tensions between Saudi Arabia and Iran, as the Saudis increase production to fill the gap.
Whatever happens between those two countries, it lessens the likelihood of low oil prices. While ConocoPhillips maintains some operations in Libya and Qatar, the firm operates primarily in more stable regions of the world. That places the firm in a position to produce oil even if the world becomes more dangerous.
Final Thoughts on COP Stock
Strategy, valuation, and political issues in some parts of the world could finally turn COP stock around. ConocoPhillips stock fell despite beating estimates on both earnings and revenue. It has also slid in recent weeks, possibly on rising costs.
However, ConocoPhillips has focused their strategy to prosper even when oil prices fall. Also, a low PE ratio and rising political tensions in some oil-producing countries could work in the company’s favor. Such pressures could become the catalyst COP stock needs to finally resume its move higher.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.