Is ConocoPhillips Stock Still Worth Owning After Strong Q1 Earnings?

Yesterday, ConocoPhillips COP reported first-quarter 2025 earnings that exceeded expectations. This was driven by higher oil equivalent production volumes, which surpassed the high end of the upstream player’s production guidance, contributing to a strong business outlook.

Before analyzing the factors driving this positive outlook, let’s review the first-quarter results.

COP’s Q1 Earnings Snapshot

ConocoPhillips reported adjusted earnings per share of $2.09, which beat the Zacks Consensus Estimate of $2.06. The bottom line increased from the prior-year level of $2.03.

One of the world’s leading independent oil and gas producers, headquartered in Houston, TX, ConocoPhillips’ quarterly revenues of $17.1 billion increased from $14.48 billion in the year-ago period. The top line beat the Zacks Consensus Estimate of $16.54 billion. For more details, check our blog: ConocoPhillips Q1 Earnings Beat Estimates, Revenues Improve Y/Y.

Chevron Corporation CVX and BP plc BP are two other energy giants and have already reported results.

COP Unlocks Early Synergies After the Marathon Oil Merger

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.

In its first-quarter transcript, COP stated that it has been swiftly and efficiently merging systems, teams, operations and assets of Marathon Oil into its own business. This is getting reflected in the fact that while reducing overlapping costs and improving operational efficiency, COP has already saved more than $500 million. With the integration, COP is also witnessing additional gains from debt refinancing, commercial synergies and tax benefits, which the company has estimated at $1 billion.

Low-Cost Reserves Secure COP’s Production

ConocoPhillips has a strong production outlook, backed by its decades of low-cost inventory of drilling sites. The company added that the costs are even lower than $40 per barrel, so that it can continue to produce cheap oil for many more years to come. The low-cost resources of COP are spread over the Lower 48, which comprises prolific shale plays like the Permian, Eagle Ford and Bakken.

Thus, COP’s business model is resilient to commodity prices. This is because the company can produce oil at such a low cost that even though prices fall, the company can sustain its upstream operations and make a profit. 

During an uncertain business environment, COP can also lean on its strong balance sheet. Notably, its debt-to-capitalization ratio has consistently remained significantly lower than that of the industry’s composite stocks over the past several years.

How the Energy Majors CVX, BP Fared in Q1

Chevron reported adjusted first-quarter earnings per share of $2.18, beating the Zacks Consensus Estimate of $2.15. The outperformance stemmed from higher-than-expected U.S. natural gas production in the company’s key upstream segment. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.) 

However, the bottom line of CVX came well below the year-ago adjusted profit of $2.93 due to weaker oil price realizations and a dip in refined product sales margins.

The company generated revenues of $47.6 billion. The sales figure missed the Zacks Consensus Estimate of $48.7 billion and decreased 2.3% year over year. For more details, read our blog: Natural Gas Lifts Chevron Q1 Earnings Amid Oil Weakness.

BP reported first-quarter 2025 adjusted earnings of 53 cents per American Depositary Share on a replacement-cost basis, excluding non-operating items. The figure lagged the Zacks Consensus Estimate of 56 cents. The bottom line also declined from the year-ago reported figure of 97 cents.

BP’s total quarterly revenues of $47.9 billion lagged the Zacks Consensus Estimate of $57.2 billion and declined from $49.9 billion reported a year ago.

The weak quarterly results can be primarily attributed to lower liquid price realizations and weaker refining margins. Lower contributions from the company's customers and products business also affected the results. For more details, read our blog: BP's Q1 Earnings & Revenues Miss Estimates on Weak Refining.

Should Investors Bet on COP?

Despite the positive developments, ConocoPhillips plunged 20.1% over the past six months, outperforming the 29.1% decline of the industry’s composite stocks.

Six-Month Price Chart

Though ConocoPhillips declined less than the industry average, the stock is presently undervalued. COP is trading at a 5.14x trailing 12-month Enterprise Value to Earnings Before Interest, Taxes, Depreciation and Amortization (EV/EBITDA), which is at a discount compared with the broader industry average of 10.94x.

Although COP is an undervalued stock with a strong outlook, investors shouldn’t immediately bet on it since several business uncertainties are engulfing the company’s business.

The possibility of weak energy demand and softening oil prices, owing to global trade tensions and faster-than-expected OPEC+ supply, is likely to hurt the company’s exploration and production operations. This is putting pressure on the company’s upstream earnings. Over the past 30 days, the Zacks Consensus Estimates for COP’s 2025 and 2026 earnings have both moved southward, signaling waning confidence in the near-term outlook.

Moreover, since the upstream energy giant made more money in countries with higher tax rates and had some unusual tax bills from U.S. asset sales, they now expect to pay more in taxes this year than they originally thought.

Thus, it might not be the right time to bet on the stock and wait for the uncertainties to subside. Those who have already invested may retain the stock, which 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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