ConocoPhillips (COP) explores, produces, transports, and markets crude oil, bitumen, natural gas, liquefied natural gas, and natural gas liquids worldwide. The company primarily engages in conventional and tight oil reservoirs, shale gas, heavy oil, LNG, oil sands, and other production operations. On the other hand, Coterra Energy Inc. (CTRA) is an independent oil and gas company that develops, explores, and produces oil, natural gas, and natural gas liquids in the United States. It primarily focuses on the Marcellus Shale with approximately 177,000 net acres.
Oil and gas prices are soaring with concerns over banning oil imports from Russia, one of the largest oil exporters. Brent crude climbed as high as $139 a barrel recently, its highest level in almost 14 years after the United States hinted at a ban on buying Russian energy. Moreover, despite net-zero pledges, big banks invest billions into oil and gas companies to drill new oil wells and tap fresh gas reserves, which should bode well for the oil and gas industry. So, both COP and CTRA could benefit.
COP has gained 41% over the past month, while CTRA has returned 29.1%. Also, COP’s 78.3% gains over the past six months are significantly higher than CTRA’s 50.1% returns. Moreover, COP is the clear winner with 80.3% gains versus CTRA’s 43.3% returns in terms of the past year’s performance.
But which of these two stocks is a better buy now? Let’s find out.
Latest Developments
On February 3, 2022, COP announced a $1 billion increase in expected 2022 return of capital to shareholders to a new total of $8 billion, an increase of more than 30% over 2021. The company also declared both an ordinary dividend of 46 cents per share and a second-quarter variable return of cash payment of 30 cents per share, a 50% increase over the first-quarter VROC. Combined, the targeted 2022 ordinary dividend and VROC represent a more than 50% increase in cash return to shareholders compared to 2021.
On February 23, 2022, Thomas E. Jorden, CEO and President of CTRA, said, “We proudly announce the next phase of our shareholder return strategy, both by increasing our base common dividend and initiating a $1.25 billion share repurchase program. We remain committed to returning 50 percent-plus of quarterly free cash flow through our base plus variable dividend framework and using share repurchases as a supplemental shareholder return method."
Recent Financial Results
COP’s total revenue and other income increased 163.9% year-over-year to 15.96 billion for the fiscal fourth quarter ended December 31, 2021. The company’s adjusted earnings came in at $3 billion compared to a loss of $201 million in the prior-year quarter. Also, its adjusted EPS came in at $2.27 compared to a loss of $0.19 in the year-ago period.
CTRA’s operating revenues increased 387.9% year-over-year to $2.23 billion for the fiscal fourth quarter ended December 31, 2021. The company’s adjusted net income came in at $670 million, representing a 544.2% year-over-year increase. Also, its adjusted EPS came in at $0.83, up 219.2% year-over-year.
Past and Expected Financial Performance
COP’s revenue and EPS grew at CAGRs of 7.6% and 4.5%, respectively, over the past three years. Analysts expect COP’s revenue to increase 44.2% for the quarter ending June 30, 2022, and 17.7% in fiscal 2022. The company’s EPS is expected to grow 90.6% for the quarter ending June 30, 2022, and 53.4% in fiscal 2022. Moreover, its EPS is expected to grow at 3.9% per annum over the next five years.
On the other hand, CTRA’s revenue and EPS grew at CAGRs of 19.6% and 22.7%, respectively, over the past three years. The company’s revenue is expected to increase 238.1% for the quarter ending June 30, 2022, and 79.5% in fiscal 2022. Its EPS is expected to grow 142.3% for the quarter ending June 30, 2022, and 24% in fiscal 2022. Also, CTRA’s EPS is expected to increase by 74.5% per annum over the next five years.
Profitability
COP’s trailing-12-month revenue is 12.71 times what CTRA generates. However, CTRA is more profitable with a gross profit margin and net income margin of 77.68% and 31.55% compared to COP’s 49.16% and 17.31%, respectively.
However, COP’s ROE, ROA, and ROTC of 21.47%, 10.44%, and 14.21% are higher than CTRA’s 16.54%, 8.56%, and 11.22%, respectively.
Valuation
In terms of forward non-GAAP P/E, COP is currently trading at 11.11x, 20.6% higher than CTRA’s 9.21x. However, CTRA’s forward EV/S ratio of 4x is 58.1% higher than COP’s 2.53x.
POWR Ratings
COP has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. On the other hand, CTRA has an overall rating of C, which translates to Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
COP has a B grade for Sentiment. This is justified as the Wall Street analysts expect the stock to hit $106.40 in the near term, which indicates a potential upside of 5.1%. On the other hand, CTRA has a D grade for Sentiment, as the Wall Street analysts expect the stock to hit $27 in the near term, which indicates no potential upside.
Of the 85 stocks in the B-rated Energy - Oil & Gas industry, COP is ranked #27. In contrast, CTRA is ranked #71.
Beyond what I’ve stated above, we have also rated the stocks for Value, Momentum, Growth, Quality, and Stability. Click here to view all the COP ratings. Also, get all the CTRA ratings here.
The Winner
Since oil and gas prices are expected to skyrocket due to the increasing sanctions on Russia, COP and CTRA should benefit. However, it’s better to bet on COP now because of its higher ROE and ROA and favorable analyst sentiment about the stock.
Our research shows that odds of success increase when one invests in stocks with an overall rating of Strong Buy or Buy. View all the other top-rated stocks in the Energy - Oil & Gas industry here.
COP shares were trading at $98.88 per share on Tuesday afternoon, down $2.39 (-2.36%). Year-to-date, COP has gained 37.68%, versus a -11.73% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.
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