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On Friday, TD Cowen initiated coverage on ConocoPhillips (NYSE:COP) with a Buy rating and a $125.00 price target. The firm's analysis highlighted the energy company's significant scale, inventory depth, and potential for capital efficiency improvements following its recent acquisition of Marathon Oil (MRO).
The analyst pointed out that ConocoPhillips possesses one of the largest independent exploration and production (E&P) portfolios, with over 20 years of inventory life, which positions it well for long-term growth.
The report mentioned the anticipated benefits from the Marathon acquisition, including more than $1 billion in synergies. These advantages are expected to become evident in 2025, as the company demonstrates strong returns on capital and maintains the lowest break-even costs in its peer group, around $32 per barrel for West Texas Intermediate (WTI) crude oil. InvestingPro data reveals impressive profitability metrics, with a 48.9% gross margin and a 20% return on equity, supported by moderate debt levels and strong interest coverage.
ConocoPhillips' long lead assets, such as the Willow Project and its involvement in Port Arthur and Qatar LNG operations, were also emphasized as key factors for the company's long-term growth. These projects are seen as attractive due to the company's 7% free cash flow (FCF) yield valuation.
Despite ConocoPhillips shares underperforming the S&P Oil & Gas Exploration & Production Select Industry Index (XOP) by 15% over the past 12 months, TD Cowen expects this trend to reverse in 2025. The analyst predicts that investor focus will shift towards the company's growing LNG projects, increased production in Alaska, and other long-term growth drivers, which could potentially enhance the stock's performance.
In other recent news, ConocoPhillips has had several significant developments. The company has been recognized for its strong operational efficiency, with Mizuho (NYSE:MFG) Securities maintaining an Outperform rating and a price target of $134. The firm's analysts anticipate ConocoPhillips to slightly outperform market expectations with their upcoming earnings. ConocoPhillips is also expected to achieve significant synergies following a strategic combination, projecting to double their initial synergy target of $500 million by the third quarter of 2024.
Recently, ConocoPhillips completed a private exchange of up to $4.0 billion in aggregate principal amount of new notes, demonstrating strong cash flow management. Furthermore, the company issued $5 billion in senior notes, a strategic move backed by robust cash flows. The company also completed its strategic acquisition of Marathon Oil Corporation (NYSE:MRO), a move expected to yield over $1 billion in synergies within the next year.
In terms of analyst coverage, Morgan Stanley (NYSE:MS) resumed coverage on ConocoPhillips, issuing an Overweight rating with a price target of $128.00, citing the company's projected cash flow growth. Similarly, Evercore ISI also resumed coverage, setting a price target at $165 and acknowledging the company's efficiency.
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