• Investors may be wondering if ConocoPhillips at around US$123.32 still offers value after a strong run, or if recent enthusiasm has already been priced in.
• The stock has seen a 27.5% return year to date and 45.5% over the last year, even though the last 7 days and 30 days showed returns of a 0.8% decline and a 5.5% decline, respectively.
• Recent coverage has focused on ConocoPhillips as a major integrated energy producer, with attention on how it is positioning its portfolio and capital allocation to align with long term demand for oil and gas while managing emissions. This context helps explain why investors have been reassessing both the growth potential and the risks around the stock price.
• Simply Wall St currently assigns ConocoPhillips a valuation score of 3 out of 6. The rest of this article will break down what that means across different valuation methods and will point to a broader way of thinking about value that ties everything together at the end.

Approach 1: ConocoPhillips Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what a stock could be worth by projecting future cash flows and discounting them back to today using a required rate of return. It is essentially asking what future cash generated by the company is worth in today’s dollars.

For ConocoPhillips, the model used is a 2 Stage Free Cash Flow to Equity approach. The latest twelve months free cash flow is about $5.8b. Analyst inputs and extrapolations are then used to project annual free cash flows out to 2035, with the 2030 figure estimated at $15.96b and discounted to today at $11.32b. Simply Wall St notes that analysts typically provide up to 5 years of estimates, and cash flows beyond that are extrapolated rather than based on direct analyst forecasts.

Putting all projected and discounted cash flows together, the model arrives at an estimated intrinsic value of $357.40 per share, compared with the recent share price of about $123.32. On this basis, the DCF suggests the stock is around 65.5% undervalued.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests ConocoPhillips is undervalued by 65.5%. Track this in your watchlist or portfolio, or discover 51 more high quality undervalued stocks.

Approach 2: ConocoPhillips Price vs Earnings

For a profitable company, the P/E ratio is a useful gauge of how much investors are paying for each dollar of current earnings. It links the share price directly to earnings, which many investors watch closely when thinking about what they are willing to pay for a stock.

What counts as a “normal” or “fair” P/E depends on how the market views a company’s growth prospects and risk. Higher expected growth and lower perceived risk can justify a higher multiple, while lower growth or higher risk usually point to a lower one.

ConocoPhillips currently trades on a P/E of about 20.6x. This compares with an Oil and Gas industry average P/E of roughly 14.7x and a peer group average of around 18.3x, so the stock sits above both of these simple benchmarks.

Simply Wall St’s Fair Ratio concept goes a step further. It estimates what a suitable P/E might be for ConocoPhillips after considering factors such as earnings growth, industry, profit margins, market cap and risk. For ConocoPhillips, the Fair Ratio is 26.9x, which is higher than the current 20.6x P/E. On this basis, and within this framework, the stock appears undervalued on earnings.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your ConocoPhillips Narrative

Earlier it was mentioned that there is an even better way to understand valuation, so Narratives are introduced here as a simple way for you to attach a clear story about ConocoPhillips to concrete numbers like fair value, future revenue, earnings and margins, then see how that story stacks up against the current price.

On Simply Wall St’s Community page, Narratives let you link your view of ConocoPhillips to an explicit forecast and fair value. For example, you might have a more optimistic story that supports a fair value around US$156.00, or a more cautious one closer to US$104.71. You can then compare those fair values with today’s share price to decide whether the stock appears attractively or fully priced based on your assumptions.

Because these Narratives update when new information such as news, guidance or earnings is added to the platform, you can quickly see how your fair value view moves and whether your ConocoPhillips story still holds up, without rebuilding a full model every time something changes.

For ConocoPhillips, however, we’ll make it really easy for you with previews of two leading ConocoPhillips Narratives:

The idea is simple: you can look at an optimistic story and a cautious story side by side, see what each one assumes about revenue, margins and valuation, then decide which feels closer to your own view.

Fair value in this optimistic narrative: US$138.00 per share.

Implied discount to this fair value versus the recent price of US$123.32: about 10.6% undervalued.

Revenue growth assumption in this narrative: 4.08% a year.

• Analysts in this camp see ConocoPhillips benefiting from global energy demand and an expanding LNG portfolio, including projects in Qatar, Port Arthur and Willow, which they link to higher future free cash flow.
• They highlight portfolio high grading, cost management and digitalization as supports for higher margins and earnings, alongside a plan to sell US$5b of non core assets and capture synergies from the Marathon Oil integration.
• The narrative leans on a consensus fair value of US$138.00, with earnings projected to reach US$9.9b by about 2029 and an assumed P/E of 18.9x, while acknowledging execution, commodity price and energy transition risks that could challenge this view.

Fair value in this cautious narrative: US$104.71 per share.

Implied premium to this fair value versus the recent price of US$123.32: about 17.8% overvalued.

Revenue growth assumption in this narrative: 3.10% a year.

• This view focuses on the reliance on a handful of large projects such as Willow and multiple LNG developments, where delays, weaker pricing or cost inflation could leave free cash flow and earnings below current expectations.
• Bearish analysts building this story assume slower revenue growth and lower future profit margins, with earnings of about US$8.1b by 2029 and a 17.5x P/E, and they point to shale productivity, breakeven targets and geopolitical exposure as key swing factors.
• On their numbers, a fair value of roughly US$104.71 is up to two standard deviations below the US$138.00 consensus target. This implies that at around US$123.32 the stock price already embeds more optimistic assumptions than this narrative supports.

Seeing both narratives side by side gives you a clear range for what different analysts think ConocoPhillips could be worth, along with the revenue growth, margin and valuation assumptions that need to hold for each story to make sense.

If you want to go beyond the previews and see how other investors are framing ConocoPhillips with their own data backed stories, See what the community is saying about ConocoPhillips.

Do you think there's more to the story for ConocoPhillips? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.