COP Trades at a Bargain: Is it a Good Time to Buy the Stock?

ConocoPhillips COP is currently considered relatively undervalued, trading at a trailing 12-month enterprise value to EBITDA (EV/EBITDA) of 5.51x. This figure is below the broader industry average of 11.92x and lower than other major upstream companies, such as Diamondback Energy Inc FANG and EOG Resources Inc EOG, which are trading at 9.81x and 5.81x EV/EBITDA, respectively. This discounted valuation suggests that the stock may witness further price appreciation.

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However, a thorough evaluation is necessary to assess whether this potential is backed by the company’s fundamentals, growth prospects and prevailing market conditions. A more in-depth analysis should help determine the stock's true value.

Marathon Oil’s Resources Hold the Key to COP’s Market Dominance

Late last year, ConocoPhillips completed the Marathon Oil acquisition. The integration has broadened ConocoPhillips' key Lower 48 portfolio while enabling it to expand its presence in prolific, low-cost U.S. basins, such as Eagle Ford, Bakken, Delaware and Permian, adding more than 2 billion barrels of resources.

The leading upstream energy company has consistently prioritized acquisitions that support its long-term objective of enhancing stockholder value. With the completion of the deal, ConocoPhillips expects to achieve more than $1 billion in annual savings by integrating operations. It anticipates the savings to be fully realized by the end of 2025.

Strategic Investments & Reserves Fuel COP’s Long-Term Growth

ConocoPhillips is making significant long-term investments in large-scale projects like Willow, LNG developments and Port Arthur, which are expected to generate $6 billion in incremental cash flow annually from 2026 to 2029. These projects reinforce COP’s commitment to sustainable growth, enhancing its global footprint in key energy markets.

By focusing on low-cost supply assets and infrastructure expansions, COP is positioning itself to maintain financial stability and generate strong returns, even in a volatile commodity price environment.

COP’s strong reserve replacement strategy further secures its long-term growth. In 2024, the company achieved a 123% organic reserve replacement ratio, increasing total reserves by 1 billion barrels of oil equivalent. This ensures COP’s ability to sustain and expand production well into the future. The combination of reserve additions and capital-efficient project execution strengthens COP’s competitive edge, allowing it to capitalize on energy demand growth while maintaining a balanced portfolio of short and long-cycle assets.

COP’s Strong Balance Sheet: A Buffer Against Oil Price Shocks

Like the Marathon Oil deal, previous acquisitions of Concho Resources and Shell plc's SHEL Permian assets have increased ConocoPhillips' debt. However, most analysts believe that COP will maintain a stronger balance sheet than industry peers, thanks to its substantial size and robust earnings.

As evident in the snapshot, COP’s total debt-to-capitalization of almost 27% is lower than 31.1% of the industry’s composite stocks. The company’s debt-to-capitalization ratio has consistently been lower than the composite stocks over the past few years. Thus, the robust financial position should aid the leading oil producer in combating periods of low crude prices.

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Time to Bet on COP Stock?

The upstream player announced a $10 billion capital return plan for 2025, consisting of $4 billion in ordinary dividends and $6 billion in share buybacks. This aligns with COP’s long-term strategy of delivering strong shareholder value, thereby reinforcing investor confidence.

Despite recent positive developments, investors should factor in ConocoPhillips' heightened vulnerability to oil price volatility, given its exclusive focus on exploration and production activities.

Also, the company plans $12.9 billion in capital spending for 2025, with $3 billion allocated for long-cycle projects. While these investments support future growth, they increase near-term cash flow pressure and could limit financial flexibility if oil prices decline.

Moreover, the U.S. administration’s potential tariffs on Canadian crude could impact COP’s Surmont production. The company’s Surmont project exports roughly half of its liquids to the United States. Market adjustments and pricing pressure could reduce the profitability of Canadian operations.

These unfavorable events are partially reflected in the stock price movement of COP, which carries a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Over the past year, the stock fell 7%, underperforming the 4.5% decline of the industry’s composite stocks.

One-Year Price Chart

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Thus, although COP stock appears undervalued, prudent investors may choose to wait for clearer signals and reduced uncertainties before making a move.

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