NEW YORK (TheStreet) -- It wasn't that long ago when the prevailing sentiment surrounding ConocoPhillips (COP) was "what else can go wrong?" While Conoco's management has made good business decisions, including spinning off the company's refining business, the outcomes have been anything but favorable.
Unlike, say, Exxon Mobil (XOM), which has a strong history of execution, Conoco's management's decision to spin-off its downstream businesses to create a pure-play exploration and production (E&P) company, wasn't well received by the Street, especially from an economic standpoint. Conoco, which before the split was always compared to Exxon and Chevron (CVX), suddenly became a "hybrid" energy major.
Today, the post-split Conoco, which, not only competes with Exxon and Chevron, but Conoco is taking on large E&P titans like Apache (APA) and Anadarko (APC). And following a better-than-expected third-quarter earnings report that produced 66% increase in Eagle Ford Shale production, not only does the Street owes Conoco an apology, these shares look attractively undervalued.
Unlike Exxon, which produced third-quarter revenue declines of 2.4%, Conoco posted revenues of $15.47 billion, which were up almost 10% year-over-year. The company's production output reached 1.51 million barrels of oil-equivalent per day, of which 1.47 million barrels production came from continuing operations.
Bears will argue that Conoco's output was indeed flat. That's true, but standpoint of overall production performance, it bested Royal Dutch Shell's (RDS-A) combined oil and gas production decline of 2%. Plus, this is where management's recent decisions are beginning to pay dividends.
For instance, Conoco benefited greatly from higher prices, which helped advance margins. And regardless of what pundits wish to believe, it can't be coincidence that the prices of oil-equivalents increased by more than 6% on a per-barrel basis - not when the likes of Exxon, Chevron and Shell are seeing the opposite reaction.
In fact, of all of the oil majors, Conoco was the only one to produce year-over-year earnings growth. The company reported a profit of $2.48 billion, which was up close to 40% year over year. This is while posting $2.01 in earnings-per-share, up from $1.46. By contrast, not only did Shell's profits did decline 31% this quarter, but rivals like BP (BP) and Total (TOT) didn't fare any better with profit declines of 26% and 20%, respectively.
So it's hard to look at Conoco's results and not be impressive with their relative performance. As noted above, with the strong showing in the Eagle Ford Shale, which now accounts for roughly 25% of the Conoco's production in the lower 48 states, there's no denying that Conoco's management has this company on the right track.
What this means is that not only is management delivering on its promise, but Conoco is suddenly benefiting from a significantly larger asset base. With the stock trading at a forward multiple of only 11, I believe there is still considerable value here, especially given the 10 billion barrels of reserves at its disposal.
What's more, I'm encouraged by the ongoing investments management is making in areas like natural gas, which should pay handsome dividends over the next couple of years. In that regard, given the company's quarterly payout of 69 cents per share, which amounts to a yield of 3.8%, these shares offer tremendous value with minimal risk. And based on growing cash-flow from operations, this stock should achieve $85 per share target in the next 12 to 18 months.
At the time of publication, the author held no position in any of the stocks mentioned.
This article was written by an independent contributor, separate from TheStreet's regular news coverage.