After a 7% increase so far this year, at the current price of around $38 per share, we believe Shares of BP plc (NYSE: BP), a European integrated energy major, could go higher in the long run. BP’s below replacement cost (RC) operating profit fell by almost exactly half in FY 2023, to $13.84 billion from $27.65 billion in 2022. Lower commodity market prices played a major role in the decline. The company’s Q4 revenue fell 25% year over year to $53 billion, mainly due to lower product and raw material prices and its adjusted EPADS (Earnings per American Depository Share) came in at $1.07. BP reported a sharp 96% year-on-year (yoy) decline in Q4 profits to $0.4 billion, driven by lower refining margins and lower oil trading activity. Despite reporting weak Q4 earnings, the company announced a $1.75 billion share buyback for the fourth quarter and committed to $3.5 billion for the first half of FY 2024. This is 3.5% of the stock’s current market capitalization, which could support its price this year. By 2025, it plans to buy back at least $14 billion worth of stock, potentially propping up the stock even more. In addition, BP’s net debt has fallen to $20.9 billion by the end of 2023, the lowest level in ten years and down from $23.7 billion in June 2023. Right now this is huge, considering it has seen a 42% year-on-year increase in interest income in 2023. , cutting off 4% of the underlying RC profit. It is worth mentioning that OPEC+ has decided to extend oil production cuts through the first half of 2024 to support prices by diverting a surplus. Given the weaker global demand, and going by the expected slowdown in the US economy and China’s weaker than expected post-pandemic recovery, the decline in production is likely to continue.
BP stock has seen extremely strong gains of 100% from levels of $20 in early January 2021 to around $38 now, versus an increase of around 40% for the S&P 500 over this roughly 3-year period. BP is one of a handful of stocks that have increased in value in each of the last 3 years, but that still hasn’t been enough for it to consistently beat the market. Returns for the stock were 30% in 2021, 31% in 2022, and 1% in 2023. By comparison, returns for the S&P 500 were 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that. BP underperformed the S&P in 2023. In fact, consistently beating the S&P 500 – in good times and bad – it’s been tough over the past few years for individual stocks; for heavyweights in the Energy sector including XOM, CVX and COP, and even for the mega-cap stars GOOG, TSLA and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 every year during the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less roller coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and high interest rates, could BP face a similar situation as it did in 2023 and underperforms the S&P over the next 12 months – or will it see a sharp jump?
For the full year 2024, BP expects both reported and underlying upstream production to be slightly higher compared to 2023. Within that, BP expects underlying production from oil production and operations to be higher and production of gas and low-carbon energy to be more low It also expects capital spending, including inorganic capital spending, to be around $16 billion in 2024.
We forecast BP revenues to be $205.3 billion for fiscal year 2024, down 2% indeed. Looking at the bottom line, we now forecast earnings per share to come in at $4.74. Given our revenue and EPS forecast changes, we revised BP Assessment to $42 per share, based on $4.74 expected EPS and an 8.9x P/E multiple for fiscal 2024. That said, the company’s stock looks cheap at current levels, with our valuation at an 11% premium to the current market . price At current levels, BP trades at a lower valuation than its peers, at around 7x forward earnings.
Beyond oil and gas production, BP also invests heavily in charging stations, biofuels, hydrogen fuels, and gas stations. As of 2023, more than 30% of its total spending was allocated to these businesses, up from 3% in 2019. It also set up aim to be a net-zero company by 2050 or earlier. Hydrogen is an integral part of the company’s strategy, and it plans to capture 10% of the hydrogen market in its core business areas. As a result, it is pushing for hydrogen projects across the UK, Europe, the US and Australia. Overall, the European oil major has invested more in non-hydrocarbon energy than other US oil majors. BP acquired Archaea Energy (a renewable natural gas production company based in the US) in late 2022 to expand its bioenergy business. The company also agreed to acquire TravelCenters of America, a leading travel center operator, earlier in 2023. As part of its heavy investment in renewable energy, BP hopes to build 20 gigawatts (GW) of renewable energy capacity by 2025 and 50 GW by 2030. Currently, it has joint venture with Equinor to build offshore wind power facilities in the US The company’s newly appointed CEO Murray Auchincloss said he plans to transform BP into a clean energy player, in contrast to European rival Shell, which has outlined. plans to reduce its investments in renewable energies.
It’s useful to see how its peers stack up. Look how BP peers rate on metrics that matter. You’ll find other valuable comparisons for companies across industries at Peer Comparisons.
returns | March 2024 MTD (1) |
2024 YTD (1) |
2017-24 Total (2) |
BP Return | 8% | 7% | 11% |
S&P 500 Return | 2% | 9% | 131% |
Hit Enhanced Value Portfolio | -1% | 3% | 635% |
(1) Returns as of 3/20/2024
(2) Cumulative total profit since the end of 2016
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