This big oil company looks like a bad investment today
Rich Smith : They say bigger is better, and a lot of folks think this is especially true in the world of oil and gas -- Warren Buffett, for example . Yet today, I'm going to go out on a limb and say that one of the bigger companies in the oil patch -- ConocoPhillips(NYSE: COP) , a former Buffett fave -- is now a stock to avoid.
Why? Let me count the ways.
Priced at 76 times forward earnings, ConocoPhillips is actually losing money today and has a negative P/E ratio. Last year, the oil giant booked losses of $4.4 billion. Those losses are growing in 2016, too, with the latest trailing-12-month numbers showing it losing money at the rate of $7.1 billion per year.
Cash profits have been negative even longer. The company dipped into negative free cash flow territory back in 2014 (burning through $516 million in negative free cash flow, according to data from S&P Global Market Intelligence ) and hasn't come up for air since. It burned through $2.5 billion in 2015, and was still burning cash at the rate of $2 billion a year at last report.
Meanwhile, debt has been steadily increasing. From $21.1 billion in long-term debt at the end of 2013, ConocoPhillips' indebtedness increased to $22.4 billion in 2014, $22.7 billion in 2015, and now stands at about $27.3 billion. Weighed against cash and short-term equivalents of $4.2 billion, that leaves the company with more than $23 billion net debt -- nearly half its own market cap.
And now here's the kicker: With lots of debt to pay down, no profits or free cash flow to do it with, but a continuing dividend yield of 2.4%, there's even a risk that ConocoPhillips may decide to cut dividends further (it's already begun cutting) to husband its cash.
Add it all up, and while ConocoPhillips may well be a "big" oil company, it doesn't look to me like a "good" oil investment at all.