Down 15% in 52 weeks, ConocoPhillips (NYSE:COP) stock is not stacking up well against its big oil peers. Over the same period of time, shares of ExxonMobil (NYSE:XOM) have climbed a respectable 20%, while Chevron (NYSE:CVX) stock has done even better -- up 33%.

But wait! Could it be time for ConocoPhillips to turn itself around, and maybe even regain some ground?

One analyst seems to think it's possible. Yesterday, Jefferies & Co. announced that less than five months after tagging Conoco as an underperformer, it's ready to relent and upgrade the stock to hold. According to, "valuation considerations" lie behind Jefferies' upgrade. But I actually think there may be more to this story than a mere measuring of Conoco's P/E.

Here are three things you need to know.

Once icy, Jefferies is starting to warm up to ConocoPhillips stock. Image source: ConocoPhillips.

1. Why Jefferies sees potential in Conoco

According to StreetInsider's note, Jefferies is upgrading Conoco "on valuation considerations" -- but they're also impressed with Conoco's "aggressive" moves toward "cutting costs." These efforts, says Jefferies, are sufficient for Conoco to break even so long as oil prices stay around $49 a barrel or more.

2. Jefferies used to hate Conoco stock a whole lot more than it does now

Roughly five months ago, though, Jefferies had an entirely different opinion of ConocoPhillips stock. As I summed it up at the time: "According to Jefferies, ConocoPhillips is a cash-burning, unprofitable, debt-laden dinosaur of the fossil fuels industry -- and a tightwad when it comes to dividend payments. According to the analyst, these are all good reasons to sell ConocoPhillips. I do not disagree."

3. When the stock price changes, they change their opinion

So why the sudden turnaround in Jefferies' opinion of ConocoPhillips? Well for one thing, they were right! Since Jefferies downgraded ConocoPhillips stock five months ago, Conoco stock has dropped 10% in price. At $41 and change today, the stock is almost by definition less of a sell than it was back then. So at first glance, Jefferies' decision to upgrade Conoco stock today seems like a logical one.

But here's where Jefferies goes wrong: Aside from the stock price, little has changed at Conoco.

What you really need to know about ConocoPhillips

As far as the valuation goes, yes, the sticker price on the stock is a bit cheaper. But Conoco is still unprofitable, and it still sells for a negative P/E ratio. What's more, according to data from S&P Global Market Intelligence, most analysts still expect to see Conoco's profits decline -- and at an annualized rate of 26% over the next five years.

Cost-cutting-wise, Jefferies says that Conoco has been "among the most aggressive companies in the sector in cutting costs" -- and that's true. The past three months saw a sequential reduction in spending on cost of goods sold (down 4% sequentially), and Conoco cut its selling, general, and administrative expenses 10%, while capital spending declined a steep 38%.

Those cuts are real, but they may not be enough.

Crucially, five months ago, Jefferies named debt as Conoco's most pressing issue -- an even "higher priority" than maintaining its dividend payout -- and I agreed, pointing out the company's massive 62.1 debt-to-equity level in comparison to Chevron's 25.1 debt-to-equity, and Exxon's 21.9. But so far, Conoco's efforts at debt reduction have yielded only meager results.

Last quarter, Conoco shrank its debt load by a mere $30 million -- barely 0.1% of its total. When you consider that Conoco generated more than $125 million in positive free cash flow last quarter, and could have paid off more, the fact that it elected to spend less than one-quarter of its cash on debt reduction suggests this is not as high on management's list of priorities as we might have hoped.

The upshot for investors

So when you get right down to it, what do you really need to know about Conoco? The same three things that Jefferies pointed out to you five months ago, back when it (rightly) advised selling the stock: Conoco has too much debt, it's not earning profits, and its cash production is week.

Those three facts shouldn't add up to a buy rating on the stock -- or in my view, even a hold.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.