Why ConocoPhillips (COP) is Surging Today

ConocoPhillips (NYSE:COP) shares are sharply higher in extended-market trading after the E&P agreed to sell its 50% interest in the FCCL Partnership, the companies’ jointly owned oil sands venture, along with the majority of its deep Basin conventional assets in Alberta and British Columbia to Cenovus Energy Inc (USA) (NYSE:CVE). When combined, the assets are expected to produce around 298,000 BOE/day for 2017.

In return, ConocoPhillips (NYSE:COP) will get $10.6 billion in cash and around $2.7 billion of Cenovus Energy Inc (USA) (NYSE:CVE) equity. ConocoPhillips is also eligible to receive five years of contingent payments depending on where Western Canada Select crude prices are. ConocoPhillips (NYSE:COP) management intends to use the proceeds to reduce its debt and to increase the buyback. The deal is expected to close in the second quarter of 2017.

Although ConocoPhillips (NYSE:COP) is selling assets at arguably still-low oil prices, shareholders are applauding the sale because it improves ConocoPhillips’ financial profile and makes its dividend much safer. The sale accelerates the rapid reduction of ConocoPhillips’ debt and improves the company’s portfolio cost of supply and margins. Traders also like how the company’s board doubled the buyback program to $6 billion from the previous $3 billion.

Incidentally, William Featherston of UBS upgraded ConocoPhilips to ‘Buy’ from ‘Neutral’ and set a $55 price target, up from the previous $51.

What Does The Smart Money Sentiment Say?

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 39.7% gains over the past 12 months and outperformed the 24.1% gain enjoyed by the S&P 500 ETFs. Our enhanced small-cap hedge fund strategy returned more than 45% over the last 12 months and outperformed SPY by more than 30 percentage points over the last 4.5 years (see details here).

Of the 742 elite funds we track, 43 funds owned $1.09 billion of ConocoPhillips (NYSE:COP) and accounted for 1.70% of the float on December 31, versus 40 funds and $1.33 billion respectively on September 30. First Eagle Investment Management raised its stake by 1% to 8.32 million shares while Donald Yacktman‘s Yacktman Asset Management trimmed its holdings by 11% to 3.8 million shares.

The Bottom Line

ConocoPhillips (NYSE:COP) is deleveraging by selling some major assets. Shareholders and Wall Street are applauding because the move makes ConocoPhillips (NYSE:COP)’s stock and dividend safer. For those of you interested, check out the largest container shipping companies in the world.

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