Conoco (COC) - The biggest U.S. IPO ever Message Board

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Gold/Mining/Energy : Conoco (COC) - The biggest U.S. IPO ever

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From: Dennis Roth	4/27/2007 7:15:37 AM
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Inexpensive, but prefer other oil equities at this time April 25, 2007 Goldman Sachs What's changed ConocoPhillips reported adjusted 1Q2007 EPS of $1.82, which was just below the $1.90 First Call consensus and our $1.95 estimate. Lower-than-expected US R&M earnings accounted for the bulk of the negative variance versus our estimate. We have lowered our 2007 EPS estimate by about 4% and our 2008-2010 EPS forecasts by 1%-2%. Implications Conoco’s 1Q2007 earnings do not change our view of its shares. The company remains inexpensive and favorably leveraged to our bullish commodity outlook, but we remain concerned that lagging ROCE and per share E&P production growth will keep its valuation low versus peer companies. Our top large-cap oil picks remain Marathon Oil, Valero Energy Suncor Energy, Murphy Oil, and Occidental Petroleum (all Buy rated). Valuation Although we are lowering our EPS forecasts, we are boosting our 12-month target price to $77 from $74 (based on asset value, cash flow and P/E valuation analyses). The upward revision despite slightly reduced earnings is due to an updated assessment of the company’s E&P resource base following its March analyst meeting and a slightly higher implied valuation for its refining assets given our more optimistic view of that business. Key risks Key risks are lower commodity prices and E&P production shortfalls. Impact on related securities The most direct read-across to Conoco’s lower US refining earnings is with Valero Energy (Buy), which is expected to report on April 26. Our 1Q2007 EPS estimate for Valero is unchanged at $1.90 versus the consensus of $1.81. Given our very bullish outlook for US refining, we would be buyers of any dip in Valero shares should it miss earnings and its stock pull back.

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