1.
CONOCOPHILLIPS
Author:
Vy
Danay
Course:
Fundamentals
of
Investment
Professor:
Francis
Thomas
The
Richard
Stockton
College
of
New
Jersey
6 0 0
N o r t h
D i a r y
A s h f o r d ,
H o u s t o n ,
T X
7 7 0 7 9

2. I. Company Structure:
ConocoPhillips is an international, integrated energy company. The merger between Conoco and
Phillips was consummated on August 30, 2002. Headquartered in Houston, Texas, ConocoPhillips
operates in more than 30 countries.
As of March 31, 2011, the company had approximately 29,600 employees worldwide and assets of
$160 billion. ConocoPhillips stock is listed on the New York Stock Exchange under the symbol
COP. Market capitalization as of March 31, 2011, was approximately $113 billion.
• Exploration and Production (E&P)— This segment primarily explores for, produces,
transports and markets crude oil, bitumen, natural gas, liquefied natural gas (LNG) and
natural gas liquids on a worldwide basis.
• Midstream— This segment gathers, processes and markets natural gas produced by
ConocoPhillips and others, and fractionates and markets natural gas liquids, predominantly
in the United States and Trinidad.
• Refining and Marketing (R&M)— This segment purchases, refines, markets and
transports crude oil and petroleum products, mainly in the United States, Europe and Asia.
• LUKOIL Investment— This segment consists of ConocoPhillips’s past investment in the
ordinary shares of OAO LUKOIL, an international, integrated oil and gas company
headquartered in Russia.
• Chemicals— This segment manufactures and markets petrochemicals and plastics on a
worldwide basis. The Chemicals segment consists of 50 percent equity investment in
Chevron Phillips Chemical Company LLC (CPChem).
• Emerging Businesses— This segment represents the investment in new technologies or
businesses outside the normal scope of operations.
II. Economic Analysis:
Economics risks are beyond ConocoPhillips’s management but have direct effects in its operations.
1) Domestic and worldwide political and economic developments could damage the
Company’s operations and materially reduce its profitability and cash flows.
Actions of the U.S., state and local governments through tax and other legislation, executive order
and commercial restrictions could reduce ConocoPhillips’s operating profitability both in the
United States and abroad. The U.S. government can prevent or restrict the Company from doing
business in foreign countries. These restrictions and those of foreign governments have in the past
limited its ability to operate in, or gain access to, opportunities in various countries.
Due to the fact that approximately 60 percent of ConocoPhillips’s hydrocarbon production was
derived from production outside the United States in 2011, and 56 percent of its proved reserves,
as of December 31, 2011, was located outside the United States, the Company is subject to risks
associated with operations in international markets, including changes in foreign governmental
policies relating to crude oil, bitumen, natural gas, natural gas liquids or refined product pricing
and taxation, other political, economic or diplomatic developments, changing political conditions
and international monetary fluctuations.
2) Changes in governmental regulations may impose price controls and limitations on
production of crude oil, bitumen and natural gas.
The Company’s operations are subject to extensive governmental regulations. From time to time,
regulatory agencies have imposed price controls and limitations on production by restricting the
rate of flow of crude oil, bitumen and natural gas wells below actual production capacity in order
to conserve supplies of crude oil, bitumen and natural gas.
3) ConocoPhillips expects to continue to incur substantial capital expenditures and
operating costs as a result of its compliance with existing and future environmental laws
ConocoPhillips’s
Analysis-­‐Page.2

3. and regulations.
The nature of its businesses is subject to numerous laws and regulations relating to the protection
of the environment. These laws and regulations continue to increase in both number and
complexity and affect its operations with respect to, among other things:
• The discharge of pollutants into the environment.
• Emissions into the atmosphere (such as nitrogen oxides, sulfur dioxide and mercury
emissions, and greenhouse gas emissions as they are, or may become, regulated).
• The handling, use, storage, transportation, disposal and cleanup of hazardous materials and
hazardous and nonhazardous wastes.
• The dismantlement, abandonment and restoration of the properties and facilities at the end
of their useful lives.
• Exploration and production activities in certain areas, such as offshore environments, arctic
fields, oil sands reservoirs and shale gas plays.
III. Industry Analysis:
Industry risks are risks occurred in a specific industry and associated with the industry’s
characters.
1) The effects of changing commodity prices and refining margins.
The revenues, operating results and future rate of growth are highly dependent on the prices that
the Company receives for the crude oil, bitumen, natural gas, natural gas liquids, LNG and refined
products. The factors influencing these prices are beyond the Company’s control.
2) Any material change in the factors and assumptions underlying ConocoPhillips’s
estimates of crude oil, bitumen and natural gas reserves could impair the quantity and
value of those reserves.
ConocoPhillips’s proved reserve information included in its annual report has been derived from
engineering estimates prepared or reviewed by the Company’s personnel. Any significant future
price changes could have a material effect on the quantity and present value of its proved reserves.
Future reserve revisions could also result from changes in, among other things, governmental
regulation. Reserve estimation is a process that involves estimating volumes to be recovered from
underground accumulations of crude oil, bitumen and natural gas that cannot be directly measured.
As a result, different petroleum engineers, each using industry-accepted geologic and engineering
practices and scientific methods, may produce different estimates of reserves and future net cash
flows based on the same available data. Any material changes in the factors and assumptions
underlying ConocoPhillips’s estimates of these items could result in a material negative impact to
the volume of reserves reported.
3) Barring a successful addition to ConocoPhillips’s existing proved reserves, its future
crude oil, bitumen and natural gas production will decline, resulting in an adverse
impact to the business. This is typical of energy companies.
The rate of production from upstream fields generally declines as reserves are depleted. This
depends on the extent that ConocoPhillips conducts successful exploration and development
activities, or, through engineering studies, identifies additional or secondary recovery reserves. It’s
proved reserves will decline materially as it produces crude oil and natural gas.
IV. Fundamental Analysis:
Intrinsic value provides a measure of the underlying worth of a share of stock. Fundamental
analysis is closely linked to the notion of intrinsic value because it provides the basis for projecting
a stock’s future cash flows. A key part of this analytical process is company analysis, which takes
a close look at the actual financial performance of the company.
ConocoPhillips’s
Analysis-­‐Page.3

4. 1) Key Ratio Analysis:
ConocoPhillips as well as all public companies have to release a 10-K report annually. The 10-K
report delivers the financial information during the fiscal year to the Company’s shareholders.
However, to understand what accounting statements really have to say about the financial
condition and operating results of a firm, one must turn to financial ratios- the study of the
relationships between various financial statement accounts.
a) Profitability ratios: is a class of financial metrics that is used to assess a business's ability
to generate earnings as compared to its expenses and other relevant costs incurred during a
specific period of time.
Ø Rate of Returns: The table shows key profit measures of ConocoPhillips during the last 10
fiscal years (from December 2002 to December 2011).
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The
profitable
key
ratios
graph
(as
a
percentage
of
revenue)
suggests
the
probable
points
in
the
ConocoPhillips’s
financial
statement
that
an
investor
should
dig
deeper
into.
During
the
last
10
fiscal
years
from
2002
to
2011
ended
in
December,
Cost
of
Goods
Sold
and
Gross
Profit
as
the
percentage
to
Total
Sales/Revenue
remained
constant,
if
not
improved,
even
in
2008.
All
other
indicators
in
profitability
fell
hard
during
2008
fiscal
year.
So
an
investor
can
predict
that
something
negative
happened
between
the
Expenses
sections
and
Net
Income
in
2008.
A
2008
Income
Statement
of
the
Company
shows
a
huge
impairment
on
Goodwill
of
$25.44
billion,
and
on
LUKOIL
investments
and
other
impairments
of
$9.1
billion.
These
impairments
were
posted
in
the
last
quarter
of
2008.
To
explain
for
the
huge
loss
ConocoPhillips
incurred
in
2008,
the
Chairman
and
Chief
Executive
Officer
James
J.
Mulva
wrote
in
its
letter
to
shareholders
of
the
company:
“With
the
recent
substantial
decline
in
commodity
prices
and
worldwide
equity
markets,
I
expect
to
recognize
several
significant
noncash
impairments
in
the
fourth
quarter.
The
largest
of
these
is
a
$25.4
billion
after-­‐tax
impairment
to
goodwill
related
to
our
Explorations
&
Productions
segment.
I
also
plan
to
ConocoPhillips’s
Analysis-­‐Page.4

5. reduce
the
carrying
value
of
our
equity
investment
in
LUKOIL
by
$7.3
billion
after-­‐tax,
and
record
other
asset
impairments
totaling
$1.3
billion
after-­‐tax.
These
impairments
are
primarily
a
function
of
falling
commodity
prices
and
the
decline
in
the
market
capitalization
of
ConocoPhillips
and
of
LUKOIL.
These
noncash
charges
do
not
impact
the
strategic
value
of
ConocoPhillips’
assets,
including
our
LUKOIL
Investment;
our
estimated
resource
base
of
more
than
50
billion
barrels
of
oil
equivalent;
or
our
ability
to
generate
cash
flow”.
As
to
General
Accepted
Accounting
Principles
(GAAP),
Goodwill
resulting
from
a
business
combination
is
not
amortized
but
is
tested
at
least
annually
for
impairment.
If
the
fair
value
of
a
reporting
unit
is
less
than
the
recorded
book
value
of
the
reporting
unit’s
assets
(including
goodwill),
less
liability,
then
a
hypothetical
purchase
price
allocation
is
performed
on
the
reporting
unit’s
assets
and
liabilities
using
the
fair
value
of
the
reporting
unit
as
the
purchase
price
in
the
calculation.
If
the
amount
of
goodwill
resulting
from
this
hypothetical
purchase
price
allocation
is
less
than
the
recorded
amount
of
goodwill,
the
recorded
goodwill
is
written
down
to
the
new
amount.
Therefore,
the
total
of
$34.5
billion
in
impairment
on
the
Income
Statement
is
added
back
to
the
Company’s
Statement
of
Cash
Flows.
Ø Findings:
• From
an
accounting
standpoint,
what
appeared
to
be
a
profit
loss
in
2008
at
ConocoPhillips
is
actually
an
impairment
write-­‐off.
This
noncash
loss
didn’t
derive
from
the
strong
fundamentals
in
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'001
ConocoPhillips’s
business.
In
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fact,
it
reduced
the
company’s
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Income
taxes
in
the
4th
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Quarter
when
posted.
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• From
a
financial
standpoint,
the
loss
in
2008
is
believed
to
be
a
financial
strategic
movement
for
a
7829 !"#$%&'()"$*+#",$-./"0
better
financial
structure.
As
this
table
breaks
down
-(#.1$2345#6
the
Total
liabilities
as
%
to
Total
Assets
and
Total
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Stockholders’
Equity
as
%
to
Total
Assets.
ROE
was
23*4 -(#.1$*00"#0
down
to
-­‐23.6%
and
ROA
declined
to
-­‐10.6%.
The
Income
Statement
already
showed
the
total
loss
of
almost
$17billion
in
2008.
To
understand
the
total
effect
of
the
decline
in
ROE
and
ROA
in
2008,
a
step
into
Equity
and
Assets
analysis
is
much
needed.
The
capital
structure
is
formed
by
liabilities
and
equity.
From
2002
to
2007,
ConocoPhillips
decreased
its
liabilities
over
time.
As
a
result,
equity
increased
during
that
period
until
they
met
in
2006
and
2007.
The
main
responsibility
of
a
financial
manager
is
to
maximize
the
wealth
of
his
shareholders.
Debt
can
be
acquired
at
a
cheaper
expense.
In
addition,
what
makes
debt
more
attractive
is
tax
deductible.
Combined
both
factors
of
debt,
funding
the
Company’s
assets
with
debt
is
a
lot
cheaper
as
compared
with
equity
which
is
not
tax
deductible
and
higher
required
rate
of
return.
I
believe
the
ConocoPhillips’s
Executives
decided
to
take
a
bigger
hit
with
ROE
together
with
the
loss.
It
is
also
a
chance
for
the
company
to
restructure
its
financial
plan
for
the
upcoming
years.
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ConocoPhillips’s
Analysis-­‐Page.5

6. b) Activity
Ratios:
Ø Cash
Conversion
Cycle:
The
cash
conversion
cycle
is
the
number
of
days
it
takes
a
company
to
run
cash
through
the
sales
process,
from
sitting
in
the
bank,
through
buying
the
inventory,
selling
the
inventory,
and
receiving
the
cash
from
the
sale.
Shorter
is
better.
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(#$
'#$
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%#$
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#$
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ConocoPhillips
has
improved
its
Cash
Conversion
Cycle
(CCC)
since
the
huge
impairment
write-­‐off,
which
caused
profit
loss
that
the
company
reported
in
2008.
This
means
the
Company
has
been
able
to
convert
its
inventories
through
sale
to
cash
before
it
has
to
pay
for
the
goods
to
its
suppliers.
The
positive
trend
in
ConocoPhillips’s
CCC
has
been
significantly
improved
since
2007
and
remained
through
the
recession
in
2008.
The
Company
has
shown
a
strong
standing
in
its
business
cycle
and
has
been
getting
even
stronger
since
2008.
Ø Findings:
• To
enhance
my
point
from
a
financial
restructuring
(in
part
a)
in
ConocoPhillips
in
2008,
I
analyzed
the
Cash
Flows
Statement
over
the
past
10
years.
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ConocoPhillips’s
Analysis-­‐Page.6

7. • The
graph
gathers
key
data
in
the
Statement
of
Cash
Flows
from
2002
to
2011,
which
are
Cash
Dividends
paid,
Repurchase
of
Common
Stock
(Treasury
Stock),
changes
in
Assets/
Liabilities
and
Cash
flows
from
investing
activities.
The
biggest
change
in
2008
is
probably
an
aggressive
increase
in
investing
activities,
specifically
in
acquiring
new
properties,
planning
and
equipment
(PPE)
of
$19
billion.
Even
though
the
company
incurred
a
big
loss
in
profit
in
2008,
it
continued
to
maintain
higher
payout
rate
(Cash
dividend
payout
+
repurchase
of
Common
Stock).
The
retained
earnings
was
used
to
purchase
more
inventory
in
2008,
when
the
gas
and
oil
price
was
at
record
low
(it
is
also
the
reason
that
ConocoPhillips
wrote
off
its
impairment
loss).
A
significant
capital
expenditure
to
acquire
PPE
of
$19
billion,
a
payout
of
$11
billion
in
Dividends
and
Repurchase
of
Common
Stocks,
and
$1.3
billion
increase
in
Inventory
can
offset
the
entire
loss
of
$17
billion.
ConocoPhillips
has
a
fabulously
strong
business
model.
• Notes:
ConocoPhillips
repurchased
$8.25
billion
of
its
Common
Stocks
during
the
market
crash.
Assuming
the
company’s
net
profit
remains
the
same,
its
EPS
will
increase
due
to
stock
repurchase
program.
Therefore,
PE
will
be
lower
and
become
more
attractive
to
common
investors.
ConocoPhillips’s
Board
of
Directors
probably
predicted
that
the
company
stock
would
have
a
negative
effect
after
the
financial
statements
were
released
in
2008.
Thus
they
decided
to
repurchase
$8.25
billion
worth
of
common
stock
to
keep
their
stock
trading
at
an
accepted
price.
This
can
be
a
reasonable
assumption.
c) Liquidity
and
Leverage
Ratios:
Liquidity
measures
are
concerned
with
the
firm’s
ability
to
meet
its
day-­‐to-­‐day
operating
expenses
and
satisfy
its
short-­‐term
obligations
as
they
come
due.
To
understand
better
about
ConocoPhillips’s
liquidity
and
financial
trend,
a
comparison
between
the
Company
and
Exxon
Mobil-­‐
the
largest
leader
in
the
energy
sector
with
over
$400
billion
in
market
cap-­‐
is
analyzed.
!"#$"%"&'()*"+,+-",.)/0,.&1 2332452 2336452 2337452 2338452 2339452 233:452 233;452 233<452 2353452 2355452
!"##$%&'()&*+','!-. /012 /01 /034 /035 /032 /035 /034 /013 6054 60/1
7"*89'()&*+','!-. /0:; /0:3 /042 /044 /024 /044 /023 /021 6 /015
<*%)%8*)='>$?$#)@$','!-. 504 50A 506; 50/: 6033 5 5023 50AA 5051 50:2
B$C&DEF"*&G','!-. /04A /0A1 /0:A /05 /051 /05: /0A3 /0A: /0:: /0::
!"##$%&'()&*+,'H-I 6062 605 60A 6021 6022 60A; 60A; 60/4 /03A /03A
7"*89'()&*+','H-I /014 /036 60/5 6056 606; 6055 6064 /0;A /04A /044
<*%)%8*)='>$?$#)@$','H-I 50/2 603A 6035 601; 6035 6033 50/5 5066 50/4 506A
B$C&DEF"*&G','H-I /0/3 /0/2 /0/2 /0/4 /0/4 /0/4 /0/4 /0/4 /0/1 /05
"#$"&&
0122345&6789& :1;<=&6789& >;474<;7?&@3A327B3& C3D5EFG1;5H&
"#'"&&
"#("&&
"#)"&&
"#""&&
)"")*+)& )"",*+)& )""(*+)& )""-*+)& )""'*+)& )"".*+)& )""$*+)& )""/*+)& )"+"*+)& )"++*+)&
!"#)"%&
!"#("%&
!"#'"%&
!"#$"%&
ConocoPhillips’s
Analysis-­‐Page.7

8.
The
trending
graph
is
calculated
by
subtracting
each
liquidity
ratio
of
COP
to
each
of
XOM.
The
difference
in
that
last
10
years
is
showed
in
the
graph.
Before
2009,
Current
Ratio
and
Quick
Ratio
was
weak
compared
to
Exxon
Mobil.
The
positive
trend
in
both
of
the
ratios
started
to
appear
after
2009.
Because
ConocoPhillips
has
improved
its
Cash
Conversion
Cycle
(part
B
findings)
since
2008,
the
positive
liquidity
trend
is
confirmed.
Leverage
ratios
didn’t
improve
significantly
but
the
Executives
are
focusing
on
a
more
attractive
leverage
ratios.
2) Stock
Price
Projection:
The
single
most
important
part
in
evaluating
a
company
is
to
project
how
it
will
perform
in
the
future.
Historically,
ConocoPhillips
(COP)
has
yielded
higher
return
than
its
competitors
as
well
as
the
market
as
a
whole.
As
of
March
9,
2012,
COP
was
trading
at
$77.16/share
on
NYSE.
Is
COP
an
undervalued
stock?
Ø Discounted
Free
Cash
Flows:
ConocoPhillips’s
Free
Cash
Flows
(FCF)
trend
from
2009
to
2017
will
probably
repeat
what
happened
from
2002
to
2008.
If
I
consider
2002
is
a
bottom
year
for
the
positive
FCF
trend,
the
new
trend
started
in
2009
has
!"##$%&'($)*+$
formed
very
similar
to
the
trend
(%$!!!"
started
in
2002.
That
is
the
reason
I
(#$!!!"
will
project
the
future
Free
Cash
Flow
(!$!!!"
in
ConocoPhillips
for
the
next
5
years
'$!!!"
based
on
the
similar
trend
that
&$!!!"
%$!!!"
happened
from
2002
to
2009.
I
also
#$!!!"
assume
that
roughly
every
6
or
7
!"
years,
ConocoPhillips
will
incur
a
#!!#)(#" #!!*)(#" #!!%)(#" #!!+)(#" #!!&)(#" #!!,)(#" #!!')(#" #!!-)(#" #!(!)(#" #!(()(#"
significant
downturn
like
they
had
in
2008.
Therefore,
I
can
create
a
projection
table
for
FCF
for
the
next
5
years,
and
it
will
increase
constantly
at
2%
a
year
after
that.
• Determine
Weighted
Average
Cost
of
Capital:
To
determine
WACC,
10
year
Treasury
bills
and
Market
return
must
be
estimated.
!"#$%&"'(!)*"(
6 !%./0,&""(!)*"(1(23(4)&/"*(!"*$&-(0(!%./0,&""(!)*"5
+,(!"*$&-
ConocoPhillips’s
Analysis-­‐Page.8

9. From
the
U.S
Department
of
Treasury
(http://www.treasury.gov/resource-­‐center/data-­‐chart-­‐
center/interest-­‐rates/Pages/TextView.aspx?data=yield),
10-­‐year
T
Bill
yield
as
of
March
9,
2012
is
2.051%.
A
conservative
market
return
in
2012
is
estimated
at
9%.
Therefore,
I
have
a
required
rate
of
return
for
Equity
roughly
10%.
*+,"()-#.") 23"$#4")
!"#$%&'() /#.0$+.1 5'."$"6.)-#."
The
average
Cost
of
Debt
is
the
average
of
the
next
5
year
7897 :9; <=;8>
Interest
Rate,
which
is
5.01%.
Because
the
Corporate
Tax
for
789?
789<
9@7A7
9@B99
B=??>
<=CC>
ConocoPhillips
in
2011
is
45.65%,
the
effected
after-­‐tax
interest
789B 9@B9? <=A7>
rate
is
(1-­‐45.65%)*5.01%=
2.724%.
789A
-"D#+'+'4)!"#$6
9@7;C
9<@88;
B=B<>
A=B7>
Because
ConocoPhillips
doesn’t
have
any
Preferred
Stock,
its
capital
structure
contains
only
Debt
and
Equity
WACC:
5.65%
WACC
is
continuously
used
to
!"#$%&$'()* !""#$%#&'()%# +,-+# *+,*-
discount
future
free
cash
flows
and
dividends
."#$%&$/012*3 4","5#
payouts.
• Discounting
Free
Cash
Flows:
!"#$%&'()%*')+,#'"+'-)$)./)*'0"+'1"&&"2+3 4556784 4585784 4588784 4584784 4589784 458:784 458;784 458<784 458=784 ?@'2A'
!"##$%&'($!)*+' ,-.,/ 0-1/2 .-3/4 -"#$2B+C),'!D!
!%!$%(&56#$7$89*:;#<$="*>$:"#?;*@'$A"#5<B 22/CD27 E11C017 ,23CF37 E,C2.7 ,,DCD17 E01C,,7 ED2CD27 17
G"*H#9A#<$!"##$%&'($!)*+' /-/0D D-.1F ,D-D.3 ,D-33D 33-4D4 F-1,F 2-,F, 2-10D 8;<>5;6
G"#'#5A$I&)@# ,2-034 ,3-03/ 1/-41. 0-244 3-,/2 //-F/4
Based
on
the
projection
of
FCF
for
ConocoPhillips,
the
Present
Value
of
Discounted
FCF
($156,059
million)
is
the
sum
of
all
the
Present
Value
of
FCF
each
year
(the
last
line).
To
be
more
conservative
and
confident,
assuming
ConocoPhillips’
actual
PV
of
Discounted
FCF
would
be
80%
of
the
projection,
which
is
$124,847
million.
This
is
the
Enterprise
Value
of
ConocoPhillips.
In
order
to
determine
the
share
price,
I
need
to
adjust
by
adding
Cash
($5,780
million)
to
the
Total
value
of
Discounted
FCF
and
subtracting
it
from
Long-­‐term
Debt
($21,610
million).
This
is
current
data
from
the
Financial
Statement.
After
all
the
calculation,
that
number
is
divided
by
total
common
stock
outstanding
estimated
at
1.28
billion
shares
(from
Google
Finance).
The
fair
market
value
for
the
firm
is
determined
at
$85.17
a
share.
If
an
overall
market
supports
ConocoPhillips,
the
best
possibility
is
its
share
can
be
traded
at
20%
higher
than
the
projected
FCF,
which
is
$134.
An
average
stock
price
traded
at
projected
FCF
is
$109.50
a
share.
Right
now,
ConocoPhillips
is
trading
at
around
$77
a
share,
a
9.4%
below
the
fair
value
in
an
average
condition,
a
29.5%
below
fair
value
in
good
market,
and
a
42.42%
below
the
best
scenario.
ConocoPhillips
is
slightly
undervalued
as
of
March
9,
2012,
investors
should
consider
to
purchase
at
$60
a
share
(approximately
20%
under
the
fair
market
value).
• Dividend
Discount
Model:
!"#$%&'()%*')+,#'"+'-)$)./)*'01+'."&&"2+#3 4566764 4564764 4568764 4569764 456:764 456;764 456<764 ?#@".%@),'
!"#$ !%"*'A%*B)@'
%&'()*+),-./012)-3 45"663 !!"7!3 5$"543 5$"483 5"9#3 $"773
%&'()*+),-:;<;,)1,= 4"$> $"!9 $">9 9"99 9"#$ 9"># <<=>>
%&)=)1+-?0@A) 4"58 4"95 4"#$ 4"86 4"$6 #7"!>
ConocoPhillips
has
a
substantial
dividend
payout
ratio
of
approximately
16%
of
EPS.
As
assumed
in
FCF
trend,
the
dividends
trend
is
expected
to
be
similar
to
the
FCF
trend.
Projected
Change
%
is
what
actually
happened
from
2002
to
2009.
The
Cost
of
Equity
is
10.03%
and
is
used
to
discount
the
future
dividends
stream.
The
estimated
fair
market
value
of
ConocoPhillips
share
is
almost
$78.
It
is
8.2%
lower
than
using
discounted
free
cash
flows.
The
average
of
both
is
$81.50
a
share.
Using
Dividend
Discount
Model,
estimated
fair
market
is
$78
a
share,
very
close
to
its
current
trading
price
as
of
March
9,
2012-­‐
$76.16
a
share.
ConocoPhillips’s
Analysis-­‐Page.9

10. V. Conclusion:
The
Efficient
market
advocates
believe
that
the
market
is
so
efficient
in
processing
new
information
that
securities
trade
very
close
to
or
at
their
correct
value
at
all
times.
Throughout
this
analysis,
you
will
find
out
how
I
approach
to
determine
Weighted
Average
Cost
of
Capital
and
all
the
key
analysis
to
calculate
ConocoPhillips’s
intrinsic
value.
After
carefully
analyzing
the
company’s
financial
statements,
I
believe
ConocoPhillips
is
currently
trading
close
to
its
fair
market
value.
Investors
should
consider
very
carefully
about
the
company
itself
and
the
overall
stock
market.
After
the
financial
crash
in
2008,
which
was
also
the
company’s
reason
to
take
advantage
of
writing
off
billions
of
dollars
of
Goodwill
impairment,
COP
bottomed
out
at
around
$35
a
share.
It
reached
the
peak
in
early
March
2011
at
almost
$80
a
share.
That
is
a
128%
increase
in
26
months-­‐
A
fabulous
return
that
any
investor
dreams
of.
Even
though
ConocoPhillips
is
fundamentally
strong,
it
hasn’t
showed
a
significant
positive
trend
in
its
leverage
ratio
(the
measure
between
debt
and
assets/equity/Net
income).
ConocoPhillips
share
is
believed
to
be
in
a
correction
period
after
forming
2
tops
at
$80
a
share
in
2008.
For
investors
who
are
interested
in
owning
equity
at
ConocoPhillips,
I
strongly
suggest
to
wait.
For
investors
who
currently
own
some
shares
at
ConocoPhillips,
I
would
recommend
them
to
consider
selling
it
now
and
wait
to
buy
it
back
sometime
in
the
near
future.
I
target
the
considering
buy
price
at
below
$60
a
share
if
ConocoPhillips
share
price
can
drop
down
in
the
near
future.
Similarly,
the
targeted
selling
price
is
at
$109.
Notes:
ConocoPhillips
repurchased
$11
billion
worth
of
its
Common
Stock
at
the
end
of
2011.
The
company
is
expected
a
much
higher
Earnings
Per
Share
(EPS)
due
to
a
higher
projected
Net
Income
and
lower
Common
stock
Outstanding
in
2012.
The
company’s
accumulated
Treasury
Stock
as
of
December
31,
2011
is
almost
$31.8
billion.
Why
did
ConocoPhillips
have
such
a
grand
preserved
Treasury
Stock?
Is
a
more
attractive
EPS
a
prediction
for
a
declining
trend
in
stock
price
in
2012?
Or
is
ConocoPhillips
planning
to
make
a
substantial
acquisition
in
2012
for
its
business
expansion?
ConocoPhillips’s
Analysis-­‐Page.10