BP shares drop to 25-year low a week after unveiling climate strategy News for the Energy Sector

There should be a differentiation in valuations within the energy sector as to businesses that have high stranded asset or regulatory risk, and those which will be low carbon businesses in the future. At the heart of BP’s reinvention is a reduction in oil and gas production and simultaneous growth in its renewables business. Looney promised investors he could do this while delivering returns of 8% to 10%. That’s not as high as the double-digit returns oil developments can sometimes bring in, but greater than many clean-energy projects. Moreover, the liabilities of BP for its catastrophic accident in 2010 have essentially erased all the earnings of the company throughout the last decade.

The consensus among Wall Street analysts is that investors should «moderate buy» BP shares. Looking at the history of these trends, perhaps none is more beloved than value investing. This strategy simply looks to identify companies that are being undervalued by the broader market. Value investors use a variety of methods, including tried-and-true valuation metrics, to find these stocks.

Here’s Why the BP Share Price is Set for a Comeback

Investors need to consider the risks of both before adding these stocks to their portfolio. The Brent crude oil benchmark has jumped to $120 a barrel, returning to levels not seen since 2008. Meanwhile, natural gas prices in the US are up by nearly 160% in the past 12 months (while in the UK and European markets prices have risen by 150% and 227% respectively – gas is not a global market).

But most investors would probably be better off watching that transformation safely from the sidelines for now. The company is one of the more leveraged names in the integrated energy peer group. This limits its flexibility to maneuver in the face of adversity.

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Shell’s earnings look likely to more than double, from $1.72 per share to $4.80. Global oil and gas markets have responded the only way free markets know how when demand outweighs supply – prices have spiked. Overall, with cash flowing into the company’s coffers, it reduced net debt by $8.3bn during the year, bringing the total to $30.6bn at the end of the year. The firm’s business has been helped by the relatively higher demand around the world. At the same time, the company has suffered because of the crisis in Ukraine that saw it report a $20.4 billion loss in the first quarter. Nevertheless, its underlying replacement cost profit rose to more than $6.2 billion, while the reduction of equity was about $14.7 billion.

• I fear it may be in terminal decline as it’s well behind many other companies in getting into green energy.
• These two factors seem to have caught the company and its management by surprise.
• Rising profits provide additional cash flow, and the firm’s international operations provide some protection against oil price volatility.

The problem for investors is that BP is basically jumping in with both feet. If this move turns out to be a strategic misstep, it’s not going to be easy to fix. Benchmark Brent crude oil prices averaged $81 per barrel in the first three months of the year, down 16% from a year earlier and 7% from the fourth-quarter. The company has also moved on from the 2010 Gulf of Mexico disaster, reduced its debt and outlined a plan to reduce its exposure to oil and gas by boosting renewable energy output. The imbalance between supply and demand has sent the oil price surging, bringing bumper profits to oil giant BP. Rupert Hargreaves looks at the numbers and asks if BP shares deserve a place in your portfolio.

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The net-debt-to-equity ratio is only 30%, which means BP is less exposed to the higher interest rate environment we are going to find ourselves in. 2023, in my mind, will see a Day trading tips flight to quality in equites, defined by stocks with high free-cash flow and shareholder return ability. He has been named Reporter of the Year in 2014 and 2021 by Reuters.

The company is scheduled to release its next quarterly earnings announcement on Tuesday, November 7th 2023. Click the link below and we’ll send you MarketBeat’s guide to investing in 5G and which 5G stocks show the most promise. The company was founded in 1908 with the purpose of exploring for and producing oil in the middle east. The company expanded into Alaska in 1959 and then accelerated its expansion when it merged with Amoco in 1998. Another merger with Burhman Castrol in 2000 created the company that is traded today. Get stock recommendations, portfolio guidance, and more from The Motley Fool’s premium services.

BP (BP) Stock Forecast, Price & News

The company hopes to be net-zero in regard to carbon emissions and production by 2050 or earlier and is well on the way to doing so. Among the many avenues of advance are the build-out of solar and wind farms as well as the expansion of a major EV charging network. The network totaled more than 9,000 https://investmentsanalysis.info/ stations around the middle of 2022 and expansion was ramping in order to meet the goal of 100,000 EV stations before 2050. This metric is found by dividing a stock’s price with the company’s revenue. Some people prefer this metric because sales are harder to manipulate on an income statement.

• While the proven Zacks Rank places an emphasis on earnings estimates and estimate revisions to find strong stocks, we also know that investors tend to develop their own individual strategies.
• Among the many avenues of advance are the build-out of solar and wind farms as well as the expansion of a major EV charging network.
• This is being executed and means that, over time, BP will be less exposed to oil prices.
• BP laid out its energy transition strategy – from integrated oil company to integrated energy company – more than two and a half years ago.
• Analysts expect the Russian producer to increase its output this year.
• Has reported on politics, economics, migration, nuclear diplomacy and business from Cairo, Vienna and elsewhere.

Additionally, lower market prices for petroleum products represent a short term risk for BP and its stock. With a dividend yield of over 4% and a trailing EV/EBITDA ratio of 3.8x and forward EV/EBITDA ratio of 2.4x, I can’t quite believe the cheapness of this stock. While the oil and gas sector is challenged in many ways, BP is a leader in the sector in changing direction away from high carbon businesses to low carbon businesses.

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Shares are looking quite well from a longer time frame too, as the monthly price change of 3.78% compares favorably with the industry’s 2.32% performance as well. A good momentum benchmark for a stock is to look at its short-term price activity, as this can reflect both current interest and if buyers or sellers currently have the upper hand. It’s also helpful to compare a security to its industry; this can show investors the best companies in a particular area. Momentum investing revolves around the idea of following a stock’s recent trend in either direction. The goal is that once a stock heads down a fixed path, it will lead to timely and profitable trades. If the company’s oil and gas business is still a significant profit centre by 2030, the combined profitability of these two divisions could hit $20bn or more, although these are just projections.

BP has a low P/E ratio (forward) of 5.6 X which implies that the firm’s shares remain undervalued. Petroleum prices remain above $100 a barrel, and new sanctions on Russian oil exports could drive prices even higher in the short term. BP’s European rivals – Shell (SHEL) and TotalEnergies (TTE) – also have low P/E ratios, indicating that the production sector as a whole may be undervalued.

BP and its peers are always looking for new prospects and this costs huge amounts of money. Unfortunately, it is going to take months if not years for supply to match the world’s seemingly insatiable demand for hydrocarbons. Even major swing producers – namely the Opec cartel – are struggling to ramp up output despite higher production targets.