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ConocoPhillips
COP Details
COP Wraps Up $390Mn Buyout: ConocoPhillips (NYSE: COP) is an energy company that offers a wide range of low cost of supply portfolio including resource-rich unconventional plays in North America and conventional assets in North America, Europe, Asia, and Australia. On August 21, 2020, the company stated that it has completed the buyout of additional liquid-rich Montney acreage in British Columbia, Canada, from Kelt Exploration Ltd. The land is adjacent to ConocoPhillips’ Montney assets. The consideration for the acquisition was ~$390 million. Furthermore, the U.S. upstream energy major has assumed ~$30 million in financial obligations associated with some of the infrastructures at the site that are partially owned. With the acquisition, COP now has 295,000 net acres in the Montney, wherein it holds 100% working interest.
2QFY20 Operational Highlights: During the quarter, the company reported an adjusted loss of 92 cents per share, as compared to adjusted earnings of $1.01 per share reported in the year-ago period. The total revenue and other income for the quarter stood at $4,016 million, down from $8,380 million reported in the year-ago period. The year over year decline was due to lower realized commodity prices and production volumes. Total expenditure for the quarter came in at $3,995 million, down from $6,322 million reported in the year-ago period. Also, exploration costs decreased from $122 million to $97 million in 2QFY20. The company exited the quarter with a cash balance of $2,907 million, and total long-term debt amounted to $14,852 million.
Income Statement Highlights (Source: Company Reports)
Outlook: With improving crude prices, the company remains on track to bring back production online. It has completely restored production in Alaska in July 2020 and now predicts Lower 48, Alaska production to be 100% restored by September. Particularly, its Montney second pad is likely to begin in 3QFY20.
Key Risks: The business prospects, including its revenues, operating results, and future growth, are highly corelated with the prices, the business receives for its products. Lower price for crude oil, bitumen, natural gas, natural gas liquids and LNG may have a material adverse effect on the revenues, operating income, cash flows and liquidity.
Valuation Methodology: EV/Sales Multiple Based Relative Valuation
EV/Sales Multiple Based Relative Valuation (Source: Thomson Reuters)
Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months
Stock Recommendation: The stock of COP closed at $35.86 with a market capitalization of ~$38.46 billion. The stock made a 52-week low and high of $20.84 and $67.13 and is currently trading at the lower band of the range. On the technical analyses front, the stock has a support level of ~34.77 and resistance level of ~38.89. Going forward, the business is expected to deliver sustained value through price cycles due to its strong balance sheet, focus on free cash flow generation, and compelling returns on capital. Considering the aforesaid facts, current trading levels and business prospects, we have valued the stock using the EV/Sales multiple based illustrative relative valuation method. For the purpose, we have considered peers like Chevron Corp (NYSE: CVX), Marathon Oil Corp (NYSE: MRO), Devon Energy Corp (NYSE: DVN), to name few, and arrived at a target price of a lower double-digit upside (in % terms). Hence, we give a ‘Buy’ recommendation on the stock at the closing price of $35.86, down 0.36% as on 4 September 2020.
COP Daily Technical Chart (Source: Refinitiv, Thomson Reuters)
Enterprise Products Partners L.P.
EPD Details
Pricing of Notes: Enterprise Products Partners L.P. (NYSE: EPD) is engaged in the exploration, treatment, processing, transportation and storage of natural gas and crude oil. In a recent update, the company stated that Enterprise Products Operating LLC (“EPO”), EPD’s operating subsidiary, has priced a public offering of $1.25 billion aggregate principal amount. The proceed from the offering is expected to be utilized for general company purposes, and repayment of debts.
2QFY20 Operational Highlights for the Period ended 30 June 2020: EPD came up with its second quarter results, wherein the business reported total revenues of $5,751 million as compared to $8,267 million in the year-ago period. Elevated marine terminal volumes of NGL along with higher margins from uncontracted storage capacity were key catalyst during the quarter. However, lower natural gas pipeline transportation volumes and decreased propylene production volumes were potential headwinds. Net income stood at $1,035 million, down from $1,215 million in 2QFY19. Total cash distribution for the quarter came in at 44.5 cents, up 1.1% year over year. Adjusted distributable cash flow was $1,577 million, down 8.4% year over year. The company exited the quarter with total outstanding debt principal amount of $29.9 billion.
Key Highlights (Source: Company Reports)
What to Expect: The company expects FY20 growth capital investments to be in the range of $2.5 billion to $3 billion. Sustaining capital expenditures for FY20 is expected to be $300 million. Furthermore, the company lowered its growth capital investment outlook for FY21 and FY22 to $2.3 billion and $1 billion, respectively, as compared to previous guidance.
Key Risks: It is worth noting that the declining production of commodities due to COVID-19 led reduced energy demand is likely to hurt short-term demand for EPD’s midstream assets. Also, the company is battered by lower natural gas pipeline transportation volumes and decreased propylene production volumes.
Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)
Price to Earnings 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 EPD closed at $17.26 with a market capitalization of ~$37.73 billion. The stock made a 52-week low and high of $10.27 and $29.56 and is currently trading at the lower band of the range. The stock has corrected 20.75% in the last three months. On the technical analyses front, the stock has a support level of ~16.91 and resistance level of ~19.31. The company remains on track to operate its partnerships in an efficient manner with a long-term emphasis on delivering consistent, value-added services to its customers, producing attractive returns on invested capital, and retaining a strong balance sheet. Considering the aforesaid facts, current trading levels and business prospects, we have valued the stock using price to earnings multiple based illustrative relative valuation method. For the purpose, we have considered peers like Plains All American Pipeline LP (NYSE: PAA), ONEOK Inc (NYSE: OKE), Williams Companies Inc (NYSE: WMB), to name few, and arrived at a target price of lower double-digit upside (in % terms). Hence, we give a ‘Buy’ recommendation on the stock at the closing price of $17.26, down 0.92% as on 4 September 2020.
EPD Daily Technical Chart (Source: Refinitiv, Thomson Reuters)
Disclaimer
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