ConocoPhillips

COP Details

Significant Gas Discovery in Offshore Norway: ConocoPhillips (NYSE: COP) is an independent exploration and production company that explores, produces, transports and markets bitumen, natural gas, crude oil, liquefied natural gas (LNG) and natural gas liquids. As of 12 November 2020, the company’s market capitalization stood at ~$36.32 billion. On 11 November 2020, the company announced a significant gas discovery in offshore Norway with estimated reserves up to 50 to 190 million barrels of recoverable oil equivalent. This discovery is expected to bolster the company’s position in the Norwegian Sea and the Heidrun area. 

Acquisition of Concho Resources: On 19 October 2020, the company announced that it entered into a definitive agreement to combine ConocoPhillips and Concho Resources in an all-stock transaction. Under the transaction, each share of Concho Resources common stock will be exchanged for a fixed ratio of 1.46 shares of ConocoPhillips common stock. The combined entity will have a total pro forma enterprise value of approximately $60 billion. This transaction will offer stakeholders a superior investment choice for sustainable performance and returns through cycles and it is expected to capture $500 million of annual cost and capital savings by 2022. The transaction is expected to be completed in the first quarter of 2021, subject to the approval of both ConocoPhillips and Concho stockholders, regulatory clearance and other customary closing conditions.

3QFY20 Operational Highlights: For Q3 FY20, the company reported total revenue of $4,380 million, higher than $4,016 million in Q2FY20. For the quarter, the company reported a net loss of $450 million. The company exited the quarter with cash and cash equivalents of $2.8 billion and short-term investments of $4 billion.

September Quarter Results (Source: Company Reports)

Valuation Methodology: EV/EBITDA Based Relative Valuation (Illustrative)

EV/EBITDA Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of COP has corrected by 14.82% in the past six months and is currently trading below the average of its 52-weeks trading range, proffering a decent opportunity for accumulation. On the technical analysis front, the stock of COP has a support level of ~$31.08 and a resistance level of ~$41.89. We have valued the stock using the EV/EBITDA multiple based illustrative relative valuation method and arrived at a target upside of lower double-digit (in percentage terms). Considering the recent gas discovery in offshore Norway, proposed acquisition of Concho Resources, resilient performance in Q3FY20, and current trading levels, we give a  ‘Buy’ recommendation on the stock at the closing price of $34.01, down by 3.6% on 12 November 2020.

COP Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Chevron Corporation

CVX Details

CVX Completes Acquisition of Noble Energy: Chevron Corporation (NYSE: CVX) is engaged in providing administrative, financial, management and technology support to integrated energy and chemical companies. As of 12 November 2020, the company’s market capitalization stood at $155.29 billion. On 5 October 2020, the company announced it has completed the acquisition of Noble Energy, Inc following the approval from Noble Energy shareholders. The acquisition is expected to deliver strong financial benefits for the company. On 28 October 2020, the company declared a quarterly dividend of 1.29 cents per share payable on 10 December 2020.

3QFY20 Operational Highlights:  For the quarter ending 30 September 2020 or Q3FY20, the company reported a net loss of $207 million against a profit of $2,580 million in pcp, due to lower commodity prices and margins resulting from the impact of COVID-19. In the same period, the adjusted earnings stood at $201 million. During the first nine months of FY20, the company’s capital and exploratory expenditures decreased to $10.3 billion as compared with $15 billion in pcp. CVX ended the quarter with a cash balance of $6,866 million.

September Quarter Results (Source: Company Reports)

Outlook:  Before the end of 2020, the company expects to close the sale of its Appalachia natural gas business. For Q4FY20, the company expects the production from Noble to around ~330 MBOED.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock recommendation: The stock of CVX has provided a return of 9.90% in the past one month and has corrected by 10.18% in the last three months period. The stock is currently trading below the average of 52-week trading range, offering decent opportunities for accumulation. On a technical analysis front, the stock price of CVX has a support level of ~$70.42 and a resistance level of ~$85.08. We have valued the stock using the EV/Sales multiple based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). Thus, considering the recently completed acquisition of Noble Energy, decent liquidity position, current trading levels, and valuation, we give a “Buy” recommendation on the stock at the closing price of $80.67 per share, down by 2.17% on 12 November 2020.

CVX Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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