ConocoPhillips Plunges 10.2% in a Day: How Should You Play the Stock?

Shares of ConocoPhillips COP slipped 10.23% in the last trading session to close at $95.25 per share. The stock price is not far away from the 52-week low of $86.81 per share, and yesterday’s selling pressure was reflected in the spike in share volumes traded. The volume of shares traded in the last market session was 13,869,000, significantly higher than the past several trading days.

Does it mean that investors should join the crowd to sell the stock? Before reaching an investment conclusion, a thorough analysis of the upstream energy major is highly warranted.

Marathon Oil Acquisition Strengthens COP’s Upstream Presence

The acquisition of Marathon Oil late last year has strengthened ConocoPhillips’ upstream presence in the Lower 48, comprising prolific shale plays like the Delaware Basin, Eagle Ford and Midland Basin. With the acquisition, COP has been able to enhance its scale, production capacity and operational efficiencies since the resources of Marathon Oil closely complement the existing assets of the upstream giant.

EOG Resources Inc. EOG is another exploration and production company that has a strong footprint in the Delaware Basin and Eagle Ford shale play. In 2024, most of EOG’s upstream operations were conducted in both the shale plays. Chevron Corporation CVX is also an energy major with a strong presence in the Permian – the most prolific play in the United States – of which Delaware is a sub-basin. In the December quarter of 2024, the Permian basin contributed significantly to CVX’s total production volume.

COP’s Impressive Reserve Replacement & Capital Efficiency

Last year, ConocoPhillips successfully replaced an impressive 244% of the produced oil and natural gas. The replacements primarily came from discoveries, acquiring Marathon Oil and the drilling of new wells. Interestingly, COP’s organic reserve replacement was a remarkable 123%, meaning that by excluding the impact of the Marathon Oil acquisition, the company was able to replace reserves just from their discoveries and drilling operations.

In this context, EOG Resources’ name is worth mentioning. EOG’s 201% reserve replacement (excluding price changes) suggests that it was able to replace twice as much of its produced oil and natural gas in 2024. The story, however, was disappointing for Chevron. CVX highlighted that its 2024 proved reserves declined 11% year over year. 

Now, let's focus on ConocoPhillips’ capital efficiency, as reflected in the fact that the company only allocates capital projects in key regions like Permian, Eagle Ford and Bakken that command short payback periods and high margins.

Should You Bet on COP?

Like EOG Resources and Chevron, COP is strongly committed to returning capital to shareholders. Considering the dividend yield picture, COP’s 3.28% yield is higher than the 2.4% yield of the composite stocks belonging to the industry. While EOG’s yield is currently 3.25%, Chevron’s is 4.4%.

Despite all the positive developments, ConocoPhillips’ upstream operations, like EOG and CVX, are highly exposed to the volatility in oil and natural gas prices, considering the very nature of its business model. Also, the regulatory uncertainty in Alaska could hurt the upstream energy giant’s operations or projects in the region.

However, ConocoPhillips is currently considered relatively undervalued, trading at a trailing 12-month enterprise value to EBITDA (EV/EBITDA) of 5.19x. This figure is below the broader industry average of 11.24x and lower than CVX and EOG Resources, which are trading at 6.50x and 5.25x EV/EBITDA, respectively.

Now, considering the backdrop, it would be ideal not to sell COP shares right away, despite the company’s stock price witnessing a sharp decline yesterday amid a broader market sell-off that was triggered by President Donald Trump’s announcement of sweeping tariffs.  

Hence, although COP is undervalued, it would be ideal to keep a close watch on the stock until the uncertainties subside. Those who have already invested should retain the stock. At present, COP carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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