Now that COP is close to digesting its purchase of Burington, the stock is attracting attention again. Also note the price target for Marathon (MRO) has been upped to $87, and Exxon (XOM) is still way below MS price target of $78. Here is the latest from Doug Terreson at Morgan Stanley:
MORGAN STANLEY RESEARCH
CONOCOPHILLIPS (COP.N): RESUMING COVERAGE: OVERWEIGHT, PX TGT $80 - April 03, 2006
What's Changed
Rating: NA to Overweight
Price Target: NA to $80.00
ConocoPhillips Has Major Momentum:
Normalized profits projected to rise by 8-10% annually during 2006-2008, with normalized returns on capital near 15%. Raising normalized EPS from $6.10/sh. to $6.20/sh.
Burlington Resources Transaction Positive: The transaction appears modestly dilutive/accretive to our earnings/cash flow projections. Strategically, ConocoPhillips becomes a likely winner in Russia's giant Shtokman project, the largest undeveloped natural gas field in world. Announcement next week.
Financial Flexibility Enhanced: Debt/capitalization is 20%, headed to 14%, with surplus cash flow likely to retire 40-50% of BR acquisition capital by year-end 2007.
ConocoPhillips Price Target Is $80/share: Using our mid-cycle EPS forecast of $6.20/share and an 75% relative earnings multiple, we attain our $80/share price target.
Historic Valuation Opportunity Present in COP? COP has rarely been this in-expensive, in relation to its industry, or the S&P 500, on a variety of measures, during the past decade. Integrated Oils MRO (O, PT $87) and XOM (O, PT $78) represent our other top picks in the industry.
Maintain Attractive View on Integrated Oils/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.
Stock Rating: Overweight
Industry View: Attractive
ModelWare EPS actual: (Dec 2004) USD 6.12; (Dec 2005) USD 10.47
ModelWare EPS estimate: (Dec 2006) USD 9.15; (Dec 2007) USD 8.75
Consensus EPS actual: (Dec 2004) USD 5.79; (Dec 2005) USD 9.35
Consensus EPS estimate: (Dec 2006) USD 9.69; (Dec 2007) USD 8.91
Share Price: USD 63.15 (Mar 31, 2006)
Target Price: USD 80.00
Market Cap (mm): USD 89,434
