As oil continues to get hammered, many exploration and production (E&P) companies have seen big downgrades as the overall sentiment for future oil prices has declined significantly. While oil prices have fell, U.S. oil inventories have risen to levels not seen in over 80 years, and natural gas inventories are 15% higher than the 5 year average putting further pressure to E&P companies. For these reasons, ConocoPhillips (COP) is the Zacks Bear of the Day.
This Zacks Rank #5 (Strong Sell) world’s largest independent Exploration and Production company, based on proved reserves and production of liquids and natural gas. They explore for, develop, and produce crude oil and natural gas globally. A commitment to safety, operating excellence and environmental stewardship guide their operations.
In their most recent earnings report, the company posted their third consecutive miss of the Zacks Consensus Revenue Estimate, and the company posted an EPS of -$0.38 compared to $1.29 in the year ago quarter. Further, cash flow estimates have plummeted and has put the possibility of a dividend reduction on the table for 2016. Lastly, Conoco’s capital budget for 2016 shows a 25% year over year reduction in their spending, and management stated they aimed to have cash flow neutrality by 2017.
As you can see from the graph below, the company’s price and earnings consensus have dropped precipitously.
Declining Estimates
Over the past 60 days, earnings estimates have dropped for Q4 15, Q1 16, FY 15, and FY 16; Q4 15 fell from -$0.14 to -$0.27, Q1 16 plummeted from $0.15 to -$0.42, FY 15 slipped from -$0.58 to -$0.79, and FY 16 collapsed from $1.03 to $0.03.
Bottom Line
With persistently low oil prices, and high inventory levels, many E&P companies are facing difficult decisions. Unfortunately for this segment, oil prices are expected to remain low throughout the entirety of 2016.
If you are inclined to invest in the U.S. Integrated Oil segment you would be best served looking into EQT GP Holdings (EQGP), who currently holds a Zacks Rank #2 (Buy).
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