Stock Analysis on Net

ConocoPhillips (NYSE:COP)

Dividend Discount Model (DDM)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Dividends are the cleanest and most straightforward measure of cash flow because these are clearly cash flows that go directly to the investor.


Intrinsic Stock Value (Valuation Summary)

ConocoPhillips, dividends per share (DPS) forecast

US$

Microsoft Excel
Year Value DPSt or Terminal value (TVt) Calculation Present value at 16.13%
0 DPS01 3.91
1 DPS1 4.30 = 3.91 × (1 + 9.97%) 3.70
2 DPS2 4.75 = 4.30 × (1 + 10.54%) 3.52
3 DPS3 5.28 = 4.75 × (1 + 11.11%) 3.37
4 DPS4 5.90 = 5.28 × (1 + 11.68%) 3.24
5 DPS5 6.62 = 5.90 × (1 + 12.25%) 3.13
5 Terminal value (TV5) 191.48 = 6.62 × (1 + 12.25%) ÷ (16.13%12.25%) 90.66
Intrinsic value of ConocoPhillips common stock (per share) $107.64
Current share price $113.09

Based on: 10-K (reporting date: 2023-12-31).

1 DPS0 = Sum of the last year dividends per share of ConocoPhillips common stock. See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.


Required Rate of Return (r)

Microsoft Excel
Assumptions
Rate of return on LT Treasury Composite1 RF 4.65%
Expected rate of return on market portfolio2 E(RM) 13.79%
Systematic risk of ConocoPhillips common stock βCOP 1.26
 
Required rate of return on ConocoPhillips common stock3 rCOP 16.13%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rCOP = RF + βCOP [E(RM) – RF]
= 4.65% + 1.26 [13.79%4.65%]
= 16.13%


Dividend Growth Rate (g)

Dividend growth rate (g) implied by PRAT model

ConocoPhillips, PRAT model

Microsoft Excel
Average Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Selected Financial Data (US$ in millions)
Dividends declared 4,720 6,327 2,619 1,831 1,500
Net income (loss) attributable to ConocoPhillips 10,957 18,680 8,079 (2,701) 7,189
Sales and other operating revenues 56,141 78,494 45,828 18,784 32,567
Total assets 95,924 93,829 90,661 62,618 70,514
Common stockholders’ equity 49,279 48,003 45,406 29,849 34,981
Financial Ratios
Retention rate1 0.57 0.66 0.68 0.79
Profit margin2 19.52% 23.80% 17.63% -14.38% 22.07%
Asset turnover3 0.59 0.84 0.51 0.30 0.46
Financial leverage4 1.95 1.95 2.00 2.10 2.02
Averages
Retention rate 0.67
Profit margin 13.73%
Asset turnover 0.54
Financial leverage 2.00
 
Dividend growth rate (g)5 9.97%

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

2023 Calculations

1 Retention rate = (Net income (loss) attributable to ConocoPhillips – Dividends declared) ÷ Net income (loss) attributable to ConocoPhillips
= (10,9574,720) ÷ 10,957
= 0.57

2 Profit margin = 100 × Net income (loss) attributable to ConocoPhillips ÷ Sales and other operating revenues
= 100 × 10,957 ÷ 56,141
= 19.52%

3 Asset turnover = Sales and other operating revenues ÷ Total assets
= 56,141 ÷ 95,924
= 0.59

4 Financial leverage = Total assets ÷ Common stockholders’ equity
= 95,924 ÷ 49,279
= 1.95

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.67 × 13.73% × 0.54 × 2.00
= 9.97%


Dividend growth rate (g) implied by Gordon growth model

g = 100 × (P0 × rD0) ÷ (P0 + D0)
= 100 × ($113.09 × 16.13%$3.91) ÷ ($113.09 + $3.91)
= 12.25%

where:
P0 = current price of share of ConocoPhillips common stock
D0 = the last year dividends per share of ConocoPhillips common stock
r = required rate of return on ConocoPhillips common stock


Dividend growth rate (g) forecast

ConocoPhillips, H-model

Microsoft Excel
Year Value gt
1 g1 9.97%
2 g2 10.54%
3 g3 11.11%
4 g4 11.68%
5 and thereafter g5 12.25%

where:
g1 is implied by PRAT model
g5 is implied by Gordon growth model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 9.97% + (12.25%9.97%) × (2 – 1) ÷ (5 – 1)
= 10.54%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 9.97% + (12.25%9.97%) × (3 – 1) ÷ (5 – 1)
= 11.11%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 9.97% + (12.25%9.97%) × (4 – 1) ÷ (5 – 1)
= 11.68%