Shares in BP are selling at a forward price/earnings (p/e) ratio of 4.9 according to Refinitiv broker estimates. BP is not the organisation it was the last time the price of Brent crude was above $100 a barrel. Its return on average capital employed (ROACE) – the company’s preferred measure of operating performance – hit 12.1% in 2021 compared to 9.9% eight years ago. A better measure of success than earnings, however, due to the distorting impact of impairments, is cash flow.
Moreover, due to the slump in the demand for refined products, the refining margin of BP fell 61%, from $15.20 in the prior year’s quarter to $5.90, and its refinery utilization plunged from 89% to 70%. All these major headwinds led BP to switch from an adjusted profit of $2.8 billion in the prior year’s quarter to a loss of -$6.7 billion. The turnaround and the transition into a greener energy player could go very well, or investors could be willing to buy the shares in anticipation of more sustainable future returns. Shares of BP currently offer a 4% dividend yield, which is covered by BP’s free cash flow.
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Indeed, BP has axed new exploration outside of areas where it already has licenses, reserves and resources. The firm remains one of the largest energy businesses in the world, and is still generating billions of dollars in cash from its oil and gas activities every year. By reinvesting these profits back into the business, the company should be able to adapt to the new normal in the energy world. On average, they predict the company’s stock price to reach $41.58 in the next year.
- By reinvesting these profits back into the business, the company should be able to adapt to the new normal in the energy world.
- At the same time, investors can look forward to that market-beating 7.3% dividend yield.
- The company expanded into Alaska in 1959 and then accelerated its expansion when it merged with Amoco in 1998.
- Limitations placed on the fossil fuel industry due to growing climate change concerns could hurt BP’s expansion plans and potentially impact the firm’s earnings potential as well as prospects for growth moving forward.
- Shell, for reference, has also chosen to cut its dividend at this point.
Just a week after revealing its plan to turn itself into a clean-energy giant, BP watched its share price drop to a 25-year low. As the second quarter was marked by unprecedented lockdowns worldwide, BP will certainly improve its results in the second half of the year. Nevertheless, while BP stated that the demand for gasoline and diesel improved to 85-90% of its normal level in August, the demand for its aviation fuel remained 70% lower than a year ago.
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Rishi Sunak’s windfall tax on North Sea oil producers has done little to dampen City growth expectations. According to analysts at Citigroup, because of spending on decommissioning of aged-out infrastructure, these Big Oil producers are already “tax negative” in the UK. That said, analysts at Jefferies have Forex correlation estimated that the tax could cost BP $100m in 2022 and $800m in 2023, just 5% of total group net profit. While any stock can see a spike in price, it takes a real winner to consistently outperform the market. Over the past quarter, shares of BP have risen 15.74%, and are up 28.32% in the last year.
In addition, they still consume a significant portion of the cash flows of the oil major every year. Given also the extremely generous dividends of BP over the last decade, it is easy to understand how the oil major has accumulated an excessive debt load. During boom times, the market may almost ignore the debt of a company but during downturns, such as the ongoing one, a high debt load weighs heavily on the stock price.
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Stocks with high Zacks Ranks and “A” grades for Value will be some of the highest-quality value stocks on the market today. Its dividend remained unchanged at 6.61 cents per share after a 10% increase in February. BP had previously halved its payout in the wake of the pandemic. It is also remarkable that the total liabilities BP has paid so far for its accident are nearly equal to the total earnings of the company ($73.8 billion) since 2011.
BP also said it expects to pay $1 billion under a UK windfall tax on the oil and gas sector between May 2022 and April 2023. Investors have generally been quite wary of the fairly new CEO’s plans to go green. The first is that oil is a cash cow and has done well for many investors for many years, so they would prefer to see BP stick to what it’s good at. There may also be a belief that oil will still be needed for a long time to come, alongside growing sustainably sourced energy. You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more.
These are just a handful of the figures considered in BP and Shell’s great Value grade. Still, they help show that the stock is likely being undervalued at the moment. Add this to the strength of its earnings outlook, and we can clearly see that BP and SHEL is an impressive value stock right now.
Due to social distancing and work from home, the demand for gasoline and diesel has significantly decreased this year. Even worse, the demand for aviation fuel has collapsed due to the reluctance of people to travel by plane amid the coronavirus crisis. Consequently, the global demand for oil products is expected by the Energy Information Administration [EIA] to slump by 8.3 million barrels per day on average this year, from 101.4 to 93.1 million barrels per day. This will mark the steepest decline in the global oil consumption in at least three decades.
BP share price valuation
Rupert has also founded and managed several businesses, including New York-based hedge fund newsletter, Hidden Value Stocks, written over 20 ebooks and appeared as an expert commentator on the BBC World Service. He has been an active investor since leaving school and has always been fascinated by the world of business and investing. Severely low blood pressure can reduce the body’s oxygen levels, which can lead to heart and brain damage. If you have symptoms of extreme low blood pressure (hypotension) or shock, seek emergency medical help. Low blood pressure is generally considered a blood pressure reading lower than 90 millimeters of mercury (mm Hg) for the top number (systolic) or 60 mm Hg for the bottom number (diastolic). MarketRank is calculated as an average of available category scores, with extra weight given to analysis and valuation.
Even worse, the oil major is still paying appreciable amounts for that accident every year. In 2019, nine years after the accident, BP paid $2.4 billion (24% of its earnings) for the accident. The company paid another $1.4 billion in the first half of this year. Therefore, the accident continues to burden the cash flows of BP significantly.
And finally, underlying profits in the Oil Production arm hit $10.3bn, up from a $5.9bn loss in 2020. However, rather than sitting on the sidelines, I want to take advantage of this opportunity and buy shares in the oil giant while other https://investmentsanalysis.info/ investors are looking the other way. In summary, BP offers excellent long-term total cash returns and is a very worthwhile purchase. Shell is currently trading with a Forward P/E ratio of 4.94 while its PEG ratio sits at 0.52.
Operations are currently underway in 80 countries around the world, the company can produce 3.7 million barrels of oil equivalents per day, and it lays claim to nearly 20 billion barrels in proven reserves. On the retail end of the business, the company operates more than 18,700 fuel stations and its largest segment is in the US. The value of your investments can go down as well as up and you may get back less than you put in. Tax treatment depends on your individual circumstances and may be subject to future change. The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. It’s interesting that some oil majors are sticking with oil production while others are expanding less aggressively into renewables.
Because of Russia’s invasion of Ukraine, market prices for energy products, namely petroleum, surged in the first-quarter of 2022. Pricing momentum has weakened in recent weeks, but petroleum products remain expensive, which is always good for companies like BP. A barrel of Brent currently costs $116, resulting in a hugely improved short term profit outlook for BP and other major producers compared to the same period last year. However, despite these desirable qualities, shares in the oil and gas giant are selling at a forward price-to-earnings (P/E) multiple of just 6.6. BP share price will next react to the ongoing volatility of oil prices.
SHEL’s price-to-earnings ratio has been as high as 9.46 and as low as 4.40, with a median of 6.47, while its PEG ratio has been as high as 2.37 and as low as 0.48, with a median of 0.82, all within the past year. Below you’ll find our previous coverage of BP stock where you can track our view over time. He has written for the Motley Fool, Gurufocus and ValueWalk among others.
It could indeed even be in terminal decline because I’m unconvinced green energy will offer declines in oil production. This is why I believe there are better FTSE 100 companies to invest in. His style has been heavily influenced by US investors Warren Buffett and Philip Carret. He is always looking for high-quality growth opportunities trading at a reasonable price, preferring cash generative businesses with strong balance sheets over blue-sky growth stocks. Despite these risks, I think the BP share price looks incredibly appealing as an investment at current levels. Not only is the company cheap compared to its peers, but it also has several growth initiatives in play that should help support earnings expansion over the next couple of years.