Earnings Scorecard: ConocoPhillips (COP)

Last month, ConocoPhillips (COP) announced its financial results for the second quarter ended June 30, 2010. The company reported robust second-quarter results attributable to the higher refining earnings, partially offset by lower exploration and production results.

ConocoPhillips intends to sell 40% of its stake to Lukoil in the third quarter and the remaining 60% by the end of 2011. Management estimates after-tax proceeds of $8.7 billion, which will be used toward share repurchases. ConocoPhillips’ remaining asset disposition program is also making headway with the sale of Syncrude and CFJ interests. In total, management expects $7 billion –$8 billion (excluding the Lukoil sale) in proceeds by year-end and will use it towards debt reduction.

Earnings Review

On July 28, ConocoPhillips reported second-quarter 2010 earnings of $1.67 per share (excluding a net benefit of $1.7 billion, primarily from dispositions and an impairment), substantially higher than the year-ago earnings of 66 cents as well as the Zacks Consensus Estimate of $1.55.

The improved performance primarily reflects a hike in commodity prices associated with improved global refining and marketing (R&M) margins, partially offset by lower production volumes.

The company generated revenues of $50.1 million, up more than 38% year-over-year and comfortably ahead of the Zacks Consensus Estimate of $44.7 billion.

Read our full coverage on this earnings report here: Impressive 2Q for Conoco

Agreement of Analysts

Out of 17 analysts covering the stock in 2010, 8 raised expectations and only 4 moved downwards in the last 30 days. Hence, the overall trend remains upside weighted. The upward revisions were mainly due to recent asset sales, expected share repurchases, and higher R&M earnings.

However, for 2011, there were 7 downward and 5 upward revisions in estimates over the last month.

Magnitude of Estimate Revisions

Following the upward revision trend for the current fiscal, EPS estimates improved 6 cents over the last 30 days to $6.29, but remained flat over the past one week. However, for 2011, earnings estimates decreased 28 cents to $7.30 over the last month, but remained flat with week-ago estimates.

Neutral Recommendation Maintained

ConocoPhillips, one of the largest integrated oil companies in North America, is on track with its disposition program. The Lukoil divestiture, combined with the previously announced Syncrude disposition, is reflective of the company’s return enhancement plan. We believe that the successful implementation of the $10 billion divestiture program, deployment of proceeds for debt reduction along with the use of operating cash flow for profitable growth could act as catalysts for the stock.

However, non-exposure to the prolific non-conventional plays and strong exposure to the tentative U.S. natural gas market continue to be causes for concern. Consequently, our Neutral recommendation for Conoco remains unchanged at this stage.

CONOCOPHILLIPS (COP): Free Stock Analysis Report

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