ConocoPhillips (COP) Down 15.9% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for ConocoPhillips (NYSE:COP). Shares have lost about 15.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is ConocoPhillips due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

ConocoPhillips Misses on Q4 Earnings, Boosts Buyback

ConocoPhillips reported fourth-quarter 2019 adjusted earnings per share of 76 cents, missing the Zacks Consensus Estimate of 81 cents. Also, the bottom line declined from the year-ago figure of $1.13 per share.

Based in Houston, TX, the world’s largest independent oil and gas producer’s quarterly revenues of $8,140 million decreased from fourth-quarter 2018 sales of $10,361 million. However, the figure beat the Zacks Consensus Estimate of $7,828 million.

The weak fourth-quarter 2019 earnings are primarily attributable to lower production volumes and declined realized commodity prices, partially offset by reduced operating costs.

The company ended 2019 with proved reserves of around 5.3 billion barrels of oil equivalent (BOE) and reserve replacement ratio of 100%.

Overall Production Falls

Total production averaged 1,334 thousand barrels of oil equivalent per day (MBoe/d), down from the year-ago quarter’s 1,357 Mboe/d. The overall production was lower than the year-ago period, primarily due to the company’s asset divestments and lower output from China. However, production from Alaska and Lower 48 rose significantly.

ConocoPhillips’ production of crude oil came in at 695 thousand barrels per day (MBD), lower than the year-ago quarter’s 717 MBD. The company’s production of natural gas liquids came in at 118 MBD, higher than the year-ago quarter’s 105 MBD. Bitumen production in the quarter was recorded at 64 MBD, lower than the fourth-quarter 2018 figure of 71 MBD. Natural gas output came in at 2,741 million cubic feet per day (MMcf/d), lower than the year-ago level of 2,785 MMcf/d.

Realized Prices Decline

The average realized crude oil price during the fourth quarter was $60.17 per barrel, representing a decrease from the year-ago realization of $63.86. Realized natural gas liquids price was recorded at $19.67 per barrel, lower than the year-ago quarter’s $28.04. Average realized natural gas price during fourth-quarter 2019 was $4.62 per thousand cubic feet, down from the year-ago period’s $6.46. As such, average realized equivalent prices fell 12.7% to $47.01 per barrel from the year-ago level of $53.

Total Expenses Fall

ConocoPhillips’ fourth-quarter total expenses decreased to $6,854 million from $7,689 million in the corresponding period of 2018, owing to lower purchased commodities. Production and operating expenses fell to $1,302 million in the reported quarter from $1,362 million in the year-ago period. However, exploration costs increased to $151 million in fourth-quarter 2019 from $102 million in the comparable period of 2018.

Balance Sheet & Capital Spending

As of Dec 31, 2019, the oil giant — with a market capitalization of around $65 billion — had $5,088 million in total cash and cash equivalents. The company had a total long-term debt of nearly $14,790 million, representing a debt-to-capitalization ratio of 30%.

In the reported quarter, ConocoPhillips generated $2,982 million in net cash from operating activities, lower than the year-ago level of $3,783 million. Capital expenditures and investments totaled $1,595 million, and dividend payments grossed $463 million. The company repurchased shares worth $749 million in the quarter.

Guidance

For 2020, its production guidance is projected in the range of 1,230-1,270 MBoe/d, excluding Libya. For first-quarter 2020, its production is expected in the range of 1,240-1,280 MBoe/d. Operating cost for the year is expected to be $5.9 billion.

For 2020, its capital guidance is projected in the range of $6.5-$6.7 billion. The company expects to buy back $3 billion shares in 2020. It added $10 billion to the already existing share repurchase program, which brings the total authorization to $25 billion.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -22.26% due to these changes.

VGM Scores

At this time, ConocoPhillips has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, ConocoPhillips has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.