World's third largest oil company ConocoPhillips (NYSE: COP) is expected to report its fourth quarter earnings on January 26, 2011. In the last three quarters of FY 2010, ConocoPhillips' reported EPS exceeded analysts' consensus estimate for quarters ended March 2010, June 2010, and September 2010, by margins of 6.50 percent, 7.10 percent, and 2.70 percent, respectively.
The international integrated energy company has six operating segments. Exploration & Production segment explores for, produces, transports and markets crude oil, natural gas, natural gas liquids and bitumen on a worldwide basis. The Midstream segment gathers, processes and markets natural gas produced by ConocoPhillips and others, and fractionates and markets natural gas liquids, predominantly in the United States and Trinidad. Refining & Marketing segment purchases, refines, markets and transports crude oil and petroleum products. The LUKOIL Investment segment consists of its equity investment in the ordinary shares of Russian oil giant LUKOIL. Its emerging businesses segment represents its investment in new technologies or businesses outside its scope of operations.
ConocoPhillips reported first quarter earnings at $2.1 billion compared with first quarter FY 2009 earnings of $0.8 billion. The improved earnings in the first quarter were mainly due to rise in the crude oil prices and lower operating costs. During the quarter, the company continued to ramp-up its drilling program in the Eagle Ford shale play. For the quarter, cash from operations was $3 billion, which included a $1 billion reduction in cash from operations related to an inventory driven increase in working capital.
COP funded a $2.5 billion capital program and paid $0.7 billion of dividends.
For the second quarter, ConocoPhillips reported earnings of $4.2 billion compared with earnings of $0.9 billion in second quarter of FY 2009. ConocoPhillips' second-quarter results were not significantly impacted by the current U.S. offshore drilling moratorium, as less than one percent of the company's oil and natural gas production comes from the impacted areas.
For the third quarter, Conoco reported earnings of $3.1 billion, compared with earnings of $1.5 billion in the first quarter of FY 2009. The third quarter adjusted earnings were $2.2 billion, or $1.50 per share, compared with adjusted earnings of $1.5 billion, or $0.97 per share, for the same period in FY 2009. During the third quarter of 2010, the company generated $10.6 billion in cash, $4.3 billion in cash from operations and $6.3 billion in cash proceeds from asset dispositions. This cash was used to pay $2.7 billion of debt, fund a $2.5 billion capital program, repurchase $0.9 billion of COP common stock and pay $0.8 billion in dividends.
The company aims to improve its earnings in the fourth quarter through disciplined capital spending, reducing debt, and repurchasing shares. ConocoPhillips expects fourth-quarter 2010 production to be approximately 1.71 million BOE per day.
For the fourth quarter ended December 31, 2010, analysts' estimates of earnings range from a low of $1.11 per share to a high of $1.57 per share, compared to the consensus estimate of $1.31 per share or $1.16 per share reported in the year ago quarter. Analysts' revenue estimates for the fourth quarter range from a low of $33.22 billion to a high of $58.34 billion, compared to a consensus estimate of $46.09 billion or $43.62 billion posted in the same quarter a year ago. For the quarter ended December 31, 2010, the consensus EPS forecast has been raised to $1.31 per share from $1.28 per share estimated a month ago, and from $1.23 per share estimated two months ago. For the fourth quarter, ConocoPhillips expects earnings to be $1.30 per share, and for the complete FY 2010, it expects earnings of $5.93 per share.
In the energy sector, ConocoPhillips competes with Exxon Mobil Corporation (NYSE: XOM), BP Plc (NYSE: BP), and Chevron Corp. (NYSE: CVX). In last one year, Exxon Mobil reported revenues of $329.81 billion, and an EPS of $5.65 per share. BP Plc reported revenues of $288.80 billion, with loss of $1.60 per share. Chevron reported revenues of $185.82 billion, and earnings of $8.37 per share.
Compared to the energy industry, ConocoPhillips has a P/E ratio of 9.19, which is lower than the industry's P/E of 17.89. The P/S ratio of the company is at 0.60, compared to industry's P/S of 1.49. The company demonstrated a quarterly growth rate of 18.80 percent; while industry's quarterly growth rate is at 8.40 percent.
In the last 52 weeks, ConocoPhillips' stock has been trading in the range of $46.63 and $68.99. In the last one year, the company's stock has gained 32 percent to reach $67.72 on January 14, 2011. Based on the EPS estimate and key financials of the company, I set a one year target price of $68.
