Please ensure Javascript is enabled for purposes of website accessibility

Why Retirees Should Keep an Eye on This Oil Stock This Week

By Matthew DiLallo - Oct 27, 2019 at 4:15PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

ConocoPhillips has an important report coming out on Tuesday morning.

ConocoPhillips (COP 1.28%) has done a masterful job repositioning its operations in recent years so that it can thrive at lower oil prices. The oil giant has reduced costs and built up a massive cash position, which gives it almost unparalleled financial flexibility. Add in a nearly 3%-yielding dividend, and this energy company has become an ideal option for retirement-focused investors.

They'll get another glimpse into the company's ability to prosper over the long-term this week when it reports its third-quarter results. Here are three things retirement-focused investors should watch in that report.

Silhouette of an offshore drilling rig at sunset.

Image source: Getty Images.

1. Check if the results matched expectations

One of the drivers of ConocoPhillips' excellent performance in recent years has been the strength of its operations. The oil producer has routinely delivered results toward the high-end of its production forecast thanks to its operating prowess. During the second quarter, for example, the company produced 1.29 million barrels of oil equivalent per day (BOE/D), which was above the high end of its 1.24 million to 1.28 million BOE/D guidance range. Fueling that high-octane performance was the company's "big three" shale plays -- the Eagle Ford, Bakken, and Permian Basin -- where output surged 26% year over year.

The company expects to build on that strong performance by producing between 1.29 million and 1.33 million BOE/D during the third quarter. Ideally, ConocoPhillips' output will come in at or above the midpoint of that range. If not, investors should look at what caused it to underperform. What we wouldn't want to see is a potentially thesis-altering issue such as poor performance at one of its "big three" shale plays since that could impact future growth.

2. Look if it generated another gusher of cash flow

ConocoPhillips' strong production results and its ability to keep a lid on costs enabled it to produce $2.9 billion of cash flow during the second quarter. That was enough to cover its capital expenses ($1.7 billion), dividend (about $300 million), and a large portion of its share repurchases ($1.2 billion). Meanwhile, it closed $600 million in asset sales, which helped boost its cash position to $6.9 billion at the end of the quarter.

That quarter marked the company's seventh straight one of generating free cash flow, and investors can hope that ConocoPhillips continued that trend during the third quarter. On one hand, it probably won't produce quite as much cash, since crude prices weren't as high during the third quarter. However, given the company's low-cost operations, it should have still produced more money than it needed to fund operations. If that wasn't the case, then investors should review what caused it to break its streak. As long as the company didn't encounter a potentially long-term issue, there's no reason to worry if it simply hit a bump in the road.

The sun setting behind an oil pump.

Image source: Getty Images.

3. See if it made any major changes to its full-year guidance

ConocoPhillips updated its full-year guidance when it posted its second-quarter numbers. It boosted its capital expense budget from $6.1 billion to $6.3 billion as a result of increasing its drilling plans in Alaska and the Eagle Ford shale. Meanwhile, it narrowed its full-year production guidance range from the initial view that output would be between 1.3 million-1.35 million BOE/D to 1.31 million-1.34 million BOE/D.

The company will likely update both numbers again this quarter since it recently closed the sale of its U.K. assets. Those properties produced about 70,000 BOE/D while the company expected to invest roughly $200 million into those assets this year. Aside from that impact, investors should see if the company makes any other changes to its outlook. The key thing to keep an eye on is something that would negatively impact the long-term view.

Reviewing results with an eye on the big picture

Many investors, as well as most Wall Street analysts, will look at ConocoPhillips' third-quarter report through a short-term lens. As such, the bulk of their focus will be on whether its quarterly earnings met expectations.

Investors with an eye toward retirement, on the other hand, should review the report with the long-term view in mind. As long as nothing cropped up that would affect the company's ability to continue thriving at lower oil prices, then the quarter should be a success. That's because the company's ability to continue prospering at lower crude prices will enable it to keep growing its cash flow. That would give it the funds to buy back more shares and further increase its dividend, which should enrich its shareholders over the long haul.

 

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

ConocoPhillips Stock Quote
ConocoPhillips
COP
$114.60 (1.28%) $1.45

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
344%
 
S&P 500 Returns
120%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.