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.
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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