I received this report this morning from a very good analyst.
MORGAN STANLEY EQUITY RESEARCH
CONOCOPHILLIPS (COP.N): POSITIVE EARNINGS SURPRISE; RAISING ESTIMATES
What's Changed
2005E EPS: From $8.55 To $8.70
Conclusion: COPç—´ Q3 2005 EPS of $2.69/share exceeded consensus expectations of $2.57/share. We are raising our 2005 EPS from $8.55/share to $8.70/share.
E&P & R&M Drove The Positive Surprise: E&P results were strong as high prices for petroleum offset increased operating costs, lower production volume and higher taxes on production. Refining profits were strong despite hurricane related costs.
Maintain Overweight: COP, MRO, XOM Favorites: Using our mid-cycle forecast of $5.65/share and an 80% relative earnings multiple we attain our $80/share price target. Integrated Oils MRO (O, PT $75) and XOM (O, PT $76) represent our top picks in the sector.
Maintain Attractive View on Integrated Oils and R&M Integrated Oils appear 15% undervalued based on normalized returns on capital. Independent R&M represents the best value per unit of return in Energy.
My Take:
Its obvious that the major oils are blowing away their numbers. This week marks the end of Mutual Fund selling pressure, and it will be interesting to watch what happens next week. Will the instituions buy the oils back, or will they move on to another sector.
The shares of many integrated oils dropped sharply on the sell-off in crude. Next week will see if this selling pressure was a knee jerk reaction, or the real deal.
