ConocoPhillips (COP) - Get Report should be a strong participant in an approaching oil-price upcycle, according to a Goldman Sachs analyst, who reiterated his buy rating Monday and added the energy giant to the firm's conviction list.
Shares of the Houston company at last check were up slightly to $39.21.
Analyst Neil Mehta, who also raised his price target to $51 from $38, said in a note to clients that "we are seeing micro/macro fundamentals bottoming and expect ConocoPhillips to be a strong participant in the upcoming oil price upcycle, given the level of underperformance relative to large-capitalization U.S. majors to date, as well as the company’s strong leverage to Brent [crude]."
The coronavirus pandemic has sparked the biggest three-month decline for global crude prices in history, as the outbreak has essentially shut down the economy.
Mehta said that ConocoPhillips has "traded in line with Brent prices, and we expect this correlation to continue, particularly as over 70% of the company’s production is Brent-linked."
He forecast that Brent oil prices would more than double from current levels at around $26 a barrel to around $55 in 2021 and $60 in 2022.
Mehta praised ConocoPhillips's "prudent decision" to cut the dividend and shift the company’s strategic focus to cash-flow growth.
"We believe this has provided the company flexibility in returning excess capital to shareholders via the buyback program," Mehta said, "while also demonstrating discipline when trimming the 2020 capital program to right-size spend for the current macro environment."
The analyst said that while the stock of the San Ramon, Calif., oil giant "has outperformed on a relative basis, we see the absolute decline in [the] share price as a function of the collapse in oil demand and oil prices."
Last week, Chevron posted stronger-than-expected first-quarter revenue and pledged to protect its dividend despite the drop in oil prices.
Chevron shares were 1% higher at $90.30. The stock was down 26% in 2020 through Friday's close.