Turning to free cash flow, Statoil extends its advantage over Conoco. Despite sporting a smaller market cap, Statoil generated more than twice the cash profits of its U.S. rival over the past 12 months — $1.5 billion versus Conoco’s $725 million.
Really, the only metric where ConocoPhillips (NYSE:COP) seems to come out a winner in the value race is on earnings growth. Analysts see Conoco growing modestly over the next five years, about 4% per annum. Statoil ASA (ADR) (NYSE:STO), in contrast, is expected to see its earnings decline at close to 4% annually over the next half decade.
So is Statoil superior?
When you consider that growth estimates are always basically just guesses about the future, I’m not sure that Conoco’s projected growth-rate advantage is reason enough to reject Weil’s advice and buy Conoco rather than Statoil. Seems to me, given that the Norwegian firm is cheaper in most respects than its rival, it offers a bit more value for the buck. Indeed, seeing as all Statoil has to do is just “tread water” for a few years, and prevent its earnings from going down, to exceed expectations, it should be easier for the stock to outperform expectations, than it will be for Conoco to produce strong growth in a weak economic environment.
When all’s said and done, I still find the weak free cash flow trends at both Statoil and Conoco a turnoff. If Statoil’s a better bargain than Conoco, it’s only by a matter of degrees. And until I see stronger cash profits being produced, I wouldn’t buy either one.
Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends 3D Systems Corporation (NYSE:DDD) and Statoil (ADR). The Motley Fool owns shares of 3D Systems and has the following options: Short Jan 2014 $36 Calls on 3D Systems and Short Jan 2014 $20 Puts on 3D Systems.
The article Tuesday’s Top Upgrades (and Downgrades) originally appeared on Fool.com and is written by Rich Smith.
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