ConocoPhillips (COP): Is This Energy Giant Undervalued Amid Cost-Cutting and Strategic Growth?

In the volatile landscape of the energy sector, ConocoPhillips (COP) has emerged as a focal point for investors seeking value amid declining oil prices and operational headwinds. With a mix of aggressive cost-cutting, strategic asset optimization, and long-term growth initiatives, the company’s current valuation and forward-looking profitability warrant a closer examination. This analysis evaluates whether COP is undervalued by synthesizing its financial performance, valuation metrics, and strategic positioning in a challenging oil price environment.

Financial Performance: Mixed Results Amid Cost-Cutting

ConocoPhillips’ Q3 2025 results highlighted both progress and challenges. Operating cash flow (OCF) after working capital changes fell to $3.485 billion, below the $6.115 billion reported in Q3 2024, while adjusted free cash flow (FCF) of $1.4 billion failed to cover $2.2 billion in shareholder returns [1]. However, the company has identified $1 billion in additional cost savings by 2026, including reductions in SG&A, operating costs, and transportation expenses [2]. These efforts align with broader synergies from the Marathon Oil acquisition, which has already delivered $1 billion in annual savings [1].

Despite lower realized oil prices—down 19% to $45.77/BOE in Q2 2025—production surged to 2,391 MBOED, driven by Marathon’s integration [2]. This resilience underscores COP’s low-cost production base, a critical advantage in a weak pricing environment. Yet, analysts warn that ongoing pricing pressure remains a near-term risk, with the Zacks Consensus revising COP’s 2025 earnings downward [3].

Valuation Metrics: A Compelling Discount to Intrinsic Value

ConocoPhillips appears significantly undervalued based on multiple valuation methodologies. A discounted cash flow (DCF) analysis estimates its intrinsic value at approximately $127.97 per share, while relative valuation approaches place it at $114.21 [4]. Combining these, the intrinsic value averages around $121.09, suggesting a 25% undervaluation relative to the current price of $91.40 [4]. A 2-stage DCF model from Simply Wall St further implies a 34% undervaluation, with an intrinsic value of $129 [5].

The company’s price-to-earnings (P/E) ratio of 13.17 is well below the market average of 28.39 [6], and its P/FCF ratio of 8.3 ranks favorably against peers like Exxon Mobil (15.81) and Chevron (20.28) [6]. These metrics highlight COP’s attractive valuation, particularly for a company with high-quality U.S. shale assets and a disciplined capital allocation strategy.

Strategic Growth: Willow, LNG, and Capital Discipline

ConocoPhillips’ long-term profitability hinges on its ability to execute strategic projects and maintain capital discipline. The Willow project in Alaska, with first production expected in 2026, represents a cornerstone of this strategy. While specific financial projections for Willow remain undisclosed [7], the project is anticipated to generate substantial cash flow as part of COP’s $12.9 billion 2025 capital expenditure guidance [8].

The company’s pivot to liquefied natural gas (LNG) also positions it to capitalize on global demand for cleaner energy. Analysts view natural gas as a “transition fuel,” with COP’s LNG expansion expected to drive revenue growth through 2029 [1]. Additionally, COP has raised its asset disposition target to $5 billion by 2026, aiming to reduce debt and reinvest in high-impact projects [2].

However, challenges persist. A 25% workforce reduction and reduced 2025 capex (estimated at $12.3–12.6 billion) signal a focus on efficiency but have drawn criticism for prioritizing staff cuts over capital allocation [9]. Critics argue that COP must balance cost discipline with investment in growth to sustain long-term value creation.

Forward-Looking Profitability: Navigating Oil Price Volatility

ConocoPhillips’ forward profitability is closely tied to oil price assumptions, though the company has not disclosed specific 2025–2026 price models [7]. External forecasts, such as Goldman Sachs’ projection of $56/Brent and $52/WTI in 2026 [10], suggest a modestly bearish outlook. This could pressure COP’s margins, particularly as it integrates Marathon Oil and lacks midstream/downstream operations to buffer against price swings [10].

Despite these risks, COP’s low-cost production base and $10 billion in 2025 shareholder returns [8] provide a buffer. Analysts project $57.8 billion in revenue and $10.5 billion in earnings by 2028, assuming a 0.9% annual revenue decline and $1.3 billion in earnings growth [3]. These forecasts hinge on successful execution of the Willow project and LNG expansion, as well as sustained cost discipline.

Conclusion: A Buy for Long-Term Value

ConocoPhillips presents a compelling case for undervaluation, supported by robust valuation metrics, strategic cost-cutting, and a diversified growth pipeline. While near-term oil price volatility and execution risks pose challenges, the company’s low-cost assets, disciplined capital allocation, and focus on LNG and high-impact projects position it for long-term resilience. Investors willing to navigate short-term uncertainties may find COP’s current valuation—a 25–34% discount to intrinsic value—particularly attractive in a sector where quality assets are increasingly scarce.

Source:
[1] ConocoPhillips Produces Lower FCF And Investors Are Bored But Is COP Stock Too Cheap [https://www.barchart.com/story/news/34007427/conocophillips-produces-lower-fcf-and-investors-are-bored-but-is-cop-stock-too-cheap]
[2] ConocoPhillips (COP) Second Quarter 2025 Earnings Call Summary and Analysis [https://www.datainsightsmarket.com/companies/COP]
[3] How Investors May Respond To ConocoPhillips (COP) Higher ... [https://finance.yahoo.com/news/investors-may-respond-conocophillips-cop-102301860.html]
[4] COP DCF Valuation - Conocophillips [https://www.alphaspread.com/security/nyse/cop/dcf-valuation/base-case]
[5] An Intrinsic Calculation For ConocoPhillips (NYSE:COP) ... [https://simplywall.st/stocks/us/energy/nyse-cop/conocophillips/news/an-intrinsic-calculation-for-conocophillips-nysecop-suggests]
[6] COP: ConocoPhillips - Financial Overview [https://www.zacks.com/stock/quote/COP/financial-overview]
[7] ConocoPhillips (COP): Evaluating Valuation After Quarterly ... [https://simplywall.st/stocks/us/energy/nyse-cop/conocophillips/news/conocophillips-cop-evaluating-valuation-after-quarterly-earn]
[8] ConocoPhillips (NYSE:COP) anticipates a significant increase in capital spending for the Willow project in 2025 [https://finance.yahoo.com/news/conocophillips-cop-q3-2024-earnings-071707193.html]
[9] Analysis-ConocoPhillips' deep layoffs highlight need for ... [https://finance.yahoo.com/news/analysis-conocophillips-deep-layoffs-highlight-193423568.html]
[10] Goldman Sachs expects slightly larger oil surplus in 2026 [https://www.reuters.com/business/energy/goldman-sachs-expects-slightly-larger-oil-surplus-2026-2025-09-08/]