COP - Embedded Expectations Analysis - 2020 06 04
ConocoPhillips (COP:USA) currently trades at a discount relative to UAFRS-based (Uniform) assets, with a 0.8x Uniform P/B. At these levels, the market has bearish expectations for the firm, and management may be concerned about liquefied natural gas (LNG) performance, production curtailment, and their Willow developmentSpecifically, management may be overstating the strength of their underlying business, and they may be downplaying concerns about the ability of Exploration & Production companies to focus on investor returns and the lagged nature of liquefied natural gas (LNG) performance. In addition, they may have concerns about the depth of the current economic downturn, the progress of their Willow development plan, and their curtailments outlook. Moreover, they may lack confidence in their ability to market their equity gas out of the Permian Basin, ramp-up to full production in a matter of weeks, and honor their crude sales contracts
ConocoPhillips is an exploration and production company engaged in exploring for, producing, transporting and marketing crude oil, bitumen, natural gas, liquefied natural gas and natural gas liquids. The company's segments include: Alaska, which operates in Alaska; Lower 48, which operates in the United States and the Gulf of Mexico; Canada, which operates in Alberta and British Columbia; Europe and North Africa, which consists of operations and exploration activities in Norway, the United Kingdom and Libya; Asia Pacific and Middle East, which operates in China, Indonesia, Malaysia, Australia, Qatar, and Timor-Leste; and Other International, which operates in Colombia, Chile and Argentina.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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