In the volatile world of energy stocks, finding undervalued opportunities can feel like striking oil. ConocoPhillips (COP), a leading global exploration and production company, recently caught my attention with a closing price of $95.50 (as of June 17, 2025). To determine if COP is a bargain, I applied two powerful valuation methods—Warren Buffett’s Discounted Cash Flow (DCF) and the McGrew Valuation—to calculate its intrinsic value. The results? COP might just be a “Screaming Buy.” Let’s dive into the analysis and explore why this energy giant could be poised for growth.
Why Value COP Now?
ConocoPhillips operates in the energy sector, a space known for its cyclical nature driven by oil prices, geopolitical events, and demand fluctuations. Despite recent volatility, COP’s strong balance sheet, disciplined capital allocation, and focus on shareholder returns (via dividends and buybacks) make it a compelling candidate for value investors. With oil prices stabilizing and global energy demand projected to rise, I wanted to assess whether COP’s current price reflects its true worth. Using five years of financial data from SEC filings, I calculated its intrinsic value per share, applied a 25% margin of safety, and compared the results to its last closing price.
The Valuation Methods
The Buffett Valuation Method is a classic DCF approach favored by Warren Buffett. It projects free cash flow (FCF) over 10 years based on a company’s growth profile—5% for stable firms or 10% for growth stocks—determined by the 3-year FCF compound annual growth rate (CAGR). A terminal value is calculated using a 2.5% perpetual growth rate and an 8% discount rate, and all cash flows are discounted to present value. The McGrew Valuation Method refines this for growth stocks by starting with a higher growth rate (based on 3-5 year FCF CAGR) that declines linearly to 10% by Year 7, holding steady thereafter. For non-growth stocks, it mirrors the Buffett method.
Data and Assumptions
Using financial data from COP’s quarterly cash flow and balance sheet statements (2020–2024), I calculated annual FCF:
- 2024: $8,006 million
- 2023: $8,717 million
- 2022: $18,155 million
- 2021: $11,672 million
- 2020: $87 million (impacted by COVID-19)
The 5-year FCF CAGR was an unrealistic 145.32% due to the low 2020 base, while the 3-year CAGR (2022–2024) was negative at -33.54%, reflecting a peak in 2022. Given these distortions, I classified COP as a stable stock, assuming a conservative 5% growth rate for both valuations. Shares outstanding were set at 1,262,410,026 (Q1 2025), and I used an 8% discount rate and 2.5% perpetual growth rate as specified.
Buffett Valuation Results
Starting with 2024 FCF of $8,006 million, I projected 10 years of FCF at 5% growth, reaching $13,041 million by Year 10. The terminal value was $243,036 million, and discounting all cash flows yielded a total present value of $171,470 million. Dividing by shares outstanding gave an intrinsic value per share of $135.85. Applying a 25% margin of safety, the target price was $101.89. Compared to the closing price of $95.50, COP falls below the margin of safety threshold, earning a Screaming Buy status (price ≤ 75% of intrinsic value).
McGrew Valuation Results
Given the unreliable CAGRs, the McGrew Valuation for non-growth stocks mirrored the Buffett method, using a 5% growth rate. The calculations were identical, resulting in an intrinsic value per share of $135.85 and a target price of $101.89. Again, the closing price of $95.50 signals a Screaming Buy. For sensitivity, I tested a growth stock scenario with a 20% starting growth rate declining to 10% by Year 7, yielding a high intrinsic value of $299.92. However, this was deemed unrealistic for COP’s cyclical industry, reinforcing the 5% assumption.
Valuation Status Table
| Stock Ticker | Valuation Method | Intrinsic Value per Share | Price with 25% Margin of Safety | Last Closing Price | Valuation Status |
|---|---|---|---|---|---|
| COP | Buffett Valuation | $135.85 | $101.89 | $95.50 | Screaming Buy |
| COP | McGrew Valuation | $135.85 | $101.89 | $95.50 | Screaming Buy |
What Does This Mean for Investors?
A Screaming Buy status suggests COP is significantly undervalued, offering a potential margin of safety for investors. At $95.50, the stock trades below the $101.89 target price, implying room for upside if the market recognizes its intrinsic value. COP’s consistent FCF generation, even in tough years, and its shareholder-friendly policies (e.g., $5,707 million in 2024 buybacks) bolster the case. However, the energy sector’s volatility warrants caution. Oil price swings, regulatory changes, and capital expenditure shifts could impact future FCF.
Limitations and Considerations
Without real-time data access, I relied on provided financials and an assumed closing price of $95.50, which couldn’t be verified against sources like Yahoo Finance. The distorted FCF CAGRs led to conservative growth assumptions, potentially underestimating COP’s growth if oil prices rise. Investors should monitor COP’s Q2 2025 results and oil market trends to validate these projections. Additionally, share buybacks may reduce shares outstanding further, potentially increasing intrinsic value per share.
ConocoPhillips appears to be a rare opportunity in the energy sector, trading at a discount to its intrinsic value. Both the Buffett and McGrew valuations point to a Screaming Buy, making COP a stock to watch for value investors. However, due diligence is key—consider macroeconomic factors and COP’s operational performance before diving in. Could COP be your next portfolio winner?
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