Barclays Is A Buyer Of ConocoPhillips, Shares Should Recover In A Few Weeks

• The share price of ConocoPhillips COP have declined 37.31 percent over the last three months, touching a low of $34.20 on January 25.
• Barclays’ Paul Y. Cheng has maintained an Overweight rating on the company, with a price target of $50.
• Although the 4Q15 results could have a negative impact on the stock in the near term, Cheng expects the shares to recover over the following couple of weeks and outperform peers.

Analyst Paul Cheng believes that management’s decision to lower the dividend to $0.25 per share per quarter has repositioned ConocoPhillips as “one of the lowest breakeven cost producers in the E&P sector and it has also become one of the lowest balance sheet risk companies in the group.”

Along with the dividend cut, the company has also lowered its capex budget from the earlier $7.7 billion to $6.4 billion. Cheng believes that this was possible partly due to the decrease in drilling activity in the Lower 48.

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“We estimate COP's cash burn will be a very manageable $3 billion annually in 2016 and 2017 under a $35 oil price environment,” Cheng stated.

According to the Barclays report, the dividend not only improves ConocoPhillips’ long-term competitive position, it also significantly enhances the company’s financial and operational flexibility.

The company’s new value proposition is “modest production growth and strong cash return over the cycle,” the report added.