On Wednesday, Mizuho Securities adjusted its outlook on shares of ConocoPhillips (NYSE:COP), lowering the price target to $132 from the previous $142. The firm has maintained a Neutral rating on the stock. The revision follows an analysis of the recent Marathon Oil (NYSE:MRO) transaction, which is expected to be accretive to near-term cash flows but dilutive to long-term inventory quality and depth.
The deal is projected to add approximately 5% and 3% to ConocoPhillips' 2025-26 estimated cash flow per share (CFPS) and earnings per share (EPS), respectively. This is partly due to the $500 million in synergies identified by ConocoPhillips management, along with potential additional savings on cash taxes. Despite these benefits, there are concerns about the impact of the transaction on the company's inventory longevity.
Mizuho's analysis indicates that ConocoPhillips' Lower 48 inventory depth will decrease from around 15 years to about 13 years. The assets acquired from Marathon Oil, mainly in the Eagle Ford (NYSE:F) and Bakken regions, are considered more mature and less productive, which has led to an approximate 8% reduction in the firm's net asset value (NAV) estimate for ConocoPhillips. This decrease in NAV is the primary reason for the lowered price target.
The firm concluded that although the Marathon Oil deal brings certain financial advantages, it does not significantly change the overall investment thesis for ConocoPhillips. The maintained Neutral rating reflects this stance, indicating that Mizuho Securities does not see a compelling change in the company's prospects following the acquisition.
InvestingPro Insights
As ConocoPhillips (NYSE:COP) navigates the post-acquisition landscape, real-time data and insights from InvestingPro can provide a clearer picture of the company's financial health. The stock's Price/Earnings (P/E) ratio stands at a modest 12.68, with an adjusted P/E for the last twelve months as of Q1 2024 at 12.62, suggesting a stable valuation relative to earnings. Additionally, ConocoPhillips boasts a robust Gross Profit Margin of 48.79% over the same period, indicating strong operational efficiency. Despite a revenue decline of 26.87% over the last twelve months as of Q1 2024, the company's dividend yield remains attractive at 4.03%, coupled with a 13.78% one-year price total return, which may catch the eye of income-focused investors.
Turning to InvestingPro Tips, two stand out for ConocoPhillips: the stock is currently in oversold territory according to the Relative Strength Index (RSI), and it has maintained dividend payments for an impressive 54 consecutive years, underscoring its commitment to returning value to shareholders. These facets of ConocoPhillips' profile could be particularly relevant for investors weighing the recent price target adjustment by Mizuho Securities. For those seeking a deeper dive, there are additional tips and metrics available on InvestingPro, including the fact that analysts predict the company will be profitable this year and that it operates with a moderate level of debt. Interested readers can find further details and make informed decisions using the exclusive coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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