As America gets ready for a new President, ConocoPhillips (COP) is preparing to hopefully ease investors' concerns over free cash flow (FCF) at its Analyst Day on Nov. 10.
So far, the independent oil and gas company has had a "challenging year," as analysts at Deutsche Bank note significant underperformance and a dividend cut. However, Deutsche Bank analyst Ryan Todd says ConocoPhillips FCF profile is "impressive and underestimated." The firm rates COP shares at Buy with a $62 price target.
"With outstanding execution in 2016 (higher vols/CF and lower costs than expectations) a strong starting point, we see the opportunity to highlight best-in-class flexibility and FCF generation at a material (20%) discount to peers," Todd wrote in a research note. COP shares were gaining by 1% during the trading session on Tuesday.
Furthermore, Todd and his team also see the potential for "material returns" to shareholders sooner than the market expects. By assuming a 5% dividend growth per year and CapEx at $5 billion to $7 billion, the Deutsche Bank analysts estimate available excess cash of $1.7 billion in 2017, $2.9 billion in 2018 (this also accounts for oil prices at $55 a barrel in 2017 and at $60 a barrel in 2018 and beyond.)
"At $60/bbl Brent, we estimate a FCF yield of 7%," the analysts wrote. That's compared to a FCF yield of 4.3% for Exxon Mobil (XOM) , 4.2% for Chevron (CVX) and 4% for Occidental Petroleum (OXY) . (Occidental is a holding in Jim Cramer's Action Alerts PLUS portfolio.)