Earnings Report Worth Watching
I have been plotting COP quarterly earnings v. the average price of oil equivalents
(@ 50-50 Oil/NG and 6MCF per BO) for the quarter since we entered the new oil price
paradigm. I established a straight line with the 9 data points from 1Q15 through
1Q17. Historically a Price/Earnings Ratio of 10 has been a pretty good number for
COP. Don't ask me how the Price of COP has been averaging around $45 for these 9
quarters when only one of those quarters showed a profit, but it has. The last
quarter (2Q17) was anomalous. It came in 40 cents above the established line. There
are three possibilities that I see for 2Q17 results:
1. It was an outlier, and 3Q17 results will revert back to the established line.
2. It was reflective of the New COP, after selective asset sales and downsizing,
and 3Q17 results will be 40 cents above the established line.
3. It was only partially reflective or the New Cop and 3Q17 results will be more
than 40 cents above the established line.
It will be interesting to watch the 3Q17 results later this month. Earnings of
7 cents per share would be 40 cents above the established line. Interestingly, the
consensus is for 4 cents. My take is that IF the New COP is now performing at 40
cents above the Old ($45 COP) level, it is worth 40 cents per quarter times 4
quarters per year times 10 times earnings or $16 more, or $61 per share.