Stock Analysis on Net
Stock Analysis on Net

ConocoPhillips (NYSE:COP)

Present Value of Free Cash Flow to Equity (FCFE)

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. Free cash flow to equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company asset base.

Intrinsic Stock Value (Valuation Summary)

ConocoPhillips, free cash flow to equity (FCFE) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFEt or Terminal value (TVt) Calculation Present value at 16.87%
01 FCFE0 8,616
1 FCFE1 9,342 = 8,616 × (1 + 8.43%) 7,994
2 FCFE2 10,137 = 9,342 × (1 + 8.51%) 7,422
3 FCFE3 11,007 = 10,137 × (1 + 8.59%) 6,896
4 FCFE4 11,961 = 11,007 × (1 + 8.66%) 6,412
5 FCFE5 13,007 = 11,961 × (1 + 8.74%) 5,966
5 Terminal value (TV5) 174,081 = 13,007 × (1 + 8.74%) ÷ (16.87% – 8.74%) 79,850
Intrinsic value of ConocoPhillips common stock 114,539
 
Intrinsic value of ConocoPhillips common stock (per share) $90.02
Current share price $90.63

Based on: 10-K (reporting date: 2024-12-31).

1 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)

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Assumptions
Rate of return on LT Treasury Composite1 RF 4.66%
Expected rate of return on market portfolio2 E(RM) 14.86%
Systematic risk of ConocoPhillips common stock βCOP 1.20
 
Required rate of return on ConocoPhillips common stock3 rCOP 16.87%

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]
= 4.66% + 1.20 [14.86% – 4.66%]
= 16.87%

FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

ConocoPhillips, PRAT model

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Average Dec 31, 2024 Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020
Selected Financial Data (US$ in millions)
Dividends declared 3,646 4,720 6,327 2,619 1,831
Net income (loss) attributable to ConocoPhillips 9,245 10,957 18,680 8,079 (2,701)
Sales and other operating revenues 54,745 56,141 78,494 45,828 18,784
Total assets 122,780 95,924 93,829 90,661 62,618
Common stockholders’ equity 64,796 49,279 48,003 45,406 29,849
Financial Ratios
Retention rate1 0.61 0.57 0.66 0.68 —
Profit margin2 16.89% 19.52% 23.80% 17.63% -14.38%
Asset turnover3 0.45 0.59 0.84 0.51 0.30
Financial leverage4 1.89 1.95 1.95 2.00 2.10
Averages
Retention rate 0.63
Profit margin 12.69%
Asset turnover 0.53
Financial leverage 1.98
 
FCFE growth rate (g)5 8.43%

Based on: 10-K (reporting date: 2024-12-31), 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).

2024 Calculations

1 Retention rate = (Net income (loss) attributable to ConocoPhillips – Dividends declared) ÷ Net income (loss) attributable to ConocoPhillips
= (9,245 – 3,646) ÷ 9,245
= 0.61

2 Profit margin = 100 × Net income (loss) attributable to ConocoPhillips ÷ Sales and other operating revenues
= 100 × 9,245 ÷ 54,745
= 16.89%

3 Asset turnover = Sales and other operating revenues ÷ Total assets
= 54,745 ÷ 122,780
= 0.45

4 Financial leverage = Total assets ÷ Common stockholders’ equity
= 122,780 ÷ 64,796
= 1.89

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.63 × 12.69% × 0.53 × 1.98
= 8.43%

FCFE growth rate (g) implied by single-stage model

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (115,316 × 16.87% – 8,616) ÷ (115,316 + 8,616)
= 8.74%

where:
Equity market value0 = current market value of ConocoPhillips common stock (US$ in millions)
FCFE0 = the last year ConocoPhillips free cash flow to equity (US$ in millions)
r = required rate of return on ConocoPhillips common stock

FCFE growth rate (g) forecast

ConocoPhillips, H-model

Microsoft Excel
Year Value gt
1 g1 8.43%
2 g2 8.51%
3 g3 8.59%
4 g4 8.66%
5 and thereafter g5 8.74%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpolation between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 8.43% + (8.74% – 8.43%) × (2 – 1) ÷ (5 – 1)
= 8.51%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 8.43% + (8.74% – 8.43%) × (3 – 1) ÷ (5 – 1)
= 8.59%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 8.43% + (8.74% – 8.43%) × (4 – 1) ÷ (5 – 1)
= 8.66%