Friday, August 10, 2007

Zacks: Conoco Still A Buy

Minus Venezuela, COP Still a Buy

News reports that ConocoPhlllips is exiting its Venezuela businesses has not caused Zacks senior energy analyst Sheraz Mian to lower his Buy rating on the shares to this point. Here's why:

The $15 billion share buyback announcement, expected to be completed by year-end 2008, followed the company's exit from Venezuela. While Venezuela is no doubt a setback, we were positively surprised by the buyback program, which will effectively reduce the company's share count by almost 9%.

Our continued positive view of ConocoPhillips shares reflects the company's strong position in the politically stable OECD [Organization for Economic Cooperation and Development] markets and attractive valuation. The company has significantly strengthened its upstream portfolio through its Burlington and LUKOIL transactions and remains a premier domestic refining player.

The recent joint partnership agreement with EnCana will enhance the company's upstream and downstream prospects further. Our new target price of $90, up from $80 before, results from applying 2007 P/E [price-to-earnings] and P/CF [price-to-cash flow] multiples of 8.7x and 5.4x, respectively. These are still at discounts to the super majors.

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