Crude oil prices have remained rangebound for a while now, but a decrease in U.S. commercial crude oil inventories and a sequential decline in inflation in April have raised expectations of a rise in crude prices. U.S. commercial crude oil inventories for the week ending May 10, 2024, decreased by 2.5 million barrels from the previous week.
U.S. crude oil inventories of 457 million barrels are about 4% below the five-year average for this time of year. Moreover, a lesser-than-expected rise in inflation in April has boosted the expectations of rate cuts this year. Rate cuts could help aid the demand for commodities, especially crude oil.
Moreover, there are expectations that OPEC and its allies will likely extend the voluntary oil output cuts into the year's second half. OPEC has stuck to its forecast for solid growth in global oil demand. The group expects demand to rise by 2.25 million barrels per day in 2024 and by 1.85 million bpd in 2025.
Meanwhile, positive economic data from the world's top two oil consumers - China and the U.S. are boosting hopes for higher demand. However, in its recent report, the IEA cut its forecast from last month for the global oil demand outlook by 140 kb/d to 1.1 million bpd this year.
Despite the fast-growing adoption of renewable energy sources, the demand for oil and gas is unlikely to slow down anytime soon. The U.S. oil and gas market is expected to grow at a CAGR of over 4% by 2029.
Given this backdrop, let’s compare two Energy - Oil & Gas stocks, ConocoPhillips (COP) and EOG Resources, Inc. (EOG), to understand why EOG will likely offer better value than COP.
The Case for ConocoPhillips Stock
ConocoPhillips (COP) explores, produces, transports, and markets crude oil, bitumen, natural gas, liquefied natural gas (LNG), and natural gas liquids internationally.
COP’s stock has declined 6.4% over the past month but gained 19.5% over the past year to close the last trading session at $120.89.
In terms of forward EV/EBIT, COP is trading at 9.29x, 3.4% lower than the industry average of 9.62x. On the other hand, the stock’s forward Price/Sales of 2.40x is 60.3% higher than the industry average of 1.50x.
COP’s trailing-12-month CAPEX / Sales of 19.83% is 33.3% higher than the industry average of 14.88%. Likewise, its trailing-12-month net income margin and levered FCF margin of 18.63% and 9.90% are 62.8% and 64.5% higher than the industry averages of 11.44% and 6.02%, respectively.
COP’s total revenues and other income for the fiscal first quarter that ended March 31, 2024, declined 6.7% year-over-year to $14.48 billion. Moreover, its adjusted earnings and earnings per share of common stock stood at $2.41 billion and $2.03, down 17.5% and 14.7% from the year-ago quarter, respectively.
However, as of March 31, 2024, COP’s total assets amounted to $95.35 billion, representing an increase of 4.3% year-over-year.
Analysts expect COP’s revenue for the quarter ending June 30, 2024, to increase 19.9% year-over-year to $15.45 billion. Its EPS for the quarter ending September 30, 2024, is expected to decline marginally year-over-year to $2.16.
The stock is trading above its 100-day moving average of $118.62 and below its 50-day moving average of $125.47.
COP’s mixed fundamentals are reflected in its POWR Ratings. It has an overall C rating, equating to Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
It has a C grade for Growth, Value, Momentum, Stability, and Sentiment. Within the Energy - Oil & Gas industry, COP is ranked #35 out of 81 stocks. To see the COP’s rating for Quality, click here.
The Case for EOG Resources, Inc. Stock
EOG Resources, Inc. (EOG) explores, develops, produces, and markets crude oil, natural gas liquids, and natural gas primarily in producing basins internationally.
The stock has gained 7.4% year-to-date to close the last trading session at $129.86. It has also gained 14.8% over the past three months.
In terms of forward EV/EBITDA, EOG is trading at 5.47x, 6.2% lower than the industry average of 5.84x. The stock’s forward non-GAAP P/E of 10.37x is 7.3% lower than the industry average of 11.57x. On the other hand, its forward non-GAAP PEG of 2.36x is 52.1% higher than the industry average of 1.55x.
EOG’s trailing-12-month asset turnover ratio of 0.55x is 8.9% higher than the industry average of 0.50x. Its trailing-12-month EBIT margin and EBITDA margin of 39.45% and 56.11% are 108.4% and 64.3% higher than the industry averages of 18.93% and 34.16%, respectively.
For the fiscal first quarter that ended March 31, 2024, EOG’s total revenue increased 1.3% year-over-year to $6.12 billion. Its free cash flow rose 14.5% from the year-ago quarter. For the same quarter, its adjusted net income and net income per share stood at $1.63 billion and $2.82, up 3% and 4.8% over the prior-year quarter, respectively.
Street expects EOG’s EPS and revenue for the quarter ending June 30, 2024, to increase 21.1% and 8.6% year-over-year to $3.02 and $6.05 billion, respectively. EOG surpassed the Street EPS and revenue estimates in each of the trailing four quarters.
The stock is trading above its 100-day and 200-day moving averages of $122.61 and $123.84, respectively.
EOG’s robust prospects are reflected in its POWR Ratings. It has an overall B rating, equating to Buy in our proprietary rating system.
EOG has an A grade for Quality. It is ranked #19 within the same industry. Click here to see EOG’s Growth, Value, Momentum, Stability, and Sentiment ratings.
COP vs. EOG: Which Energy Stock Offers Better Value?
The energy industry is expected to grow consistently due to stable demand for oil and gas, advancements in exploration technologies, and increased drilling activities. The ongoing geopolitical challenges, output cuts by OPEC+, expectations of interest rate cuts this year, and a recovering Chinese economy are likely to boost crude oil prices.
Both COP and EOG look well-positioned to capitalize on these favorable industry trends. However, given EOG’s solid financials and robust profitability, it could be a better investment choice than COP.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Energy - Oil & Gas industry here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
COP shares were trading at $121.57 per share on Tuesday morning, up $0.68 (+0.56%). Year-to-date, COP has gained 6.16%, versus a 11.95% rise in the benchmark S&P 500 index during the same period.
About the Author: Neha Panjwani
From her school days, Neha harbored a profound fascination for finance, a passion that steered her toward a career as an investment analyst following the completion of her bachelor's degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her comprehension of investment fundamentals. Neha's primary objective is to aid retail investors in discerning optimal investment opportunities by diligently evaluating crucial aspects of financial instruments, with a primary focus on stocks and ETFs. Her commitment lies in empowering individuals to make informed and strategic investment decisions in the dynamic world of finance.
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