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Bull of the Day: BP plc (BP)

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Global oil prices rose on Tuesday as concerns related to supply levels continue to mount. A strike in Norway and disruptions in Libya have added to these concerns, while sanctions against Iran and the ongoing Venezuela crisis have devastated inventory. Nevertheless, disciplined oil behemoths like BP plc (BP - Free Report) might actually be able to take advantage of these trends.

BP is one of the world's largest petroleum and petrochemicals groups. Its main activities are exploration and production of crude oil and natural gas; refining, marketing, supply and transportation; and manufacturing and marketing of petrochemicals.

Positive earnings estimate revisions have earned BP a Zacks Rank #1 (Strong Buy), and this strong analyst sentiment underscores exciting growth opportunities for investors right now. Let’s take a closer look.

Latest Earnings Outlook

We are obviously heading into the heart of Q2 earnings season soon, and BP’s next report is expected to be out about a month from now. For that quarter, current consensus estimates are calling for earnings of $0.87 per share, which would mark growth of more than 314% year over year.

Backing things out a bit, the Zacks Consensus Estimate for BP’s full-year 2018 earnings currently sits at $3.34 per share, and investors should note that this figure has been trending upward recently. Specifically, this consensus projection has added 21 cents over the past 30 days thanks to three positive estimate revisions.

Positive estimate revision trends speak to the company’s strong Zacks Rank, but as noted, there are a few more reasons to be bullish on BP right now.

Other Reasons To Buy

As mentioned, one of the key issues throughout the global oil business recently has been meeting demand, but BP certainly does not have to worry about its production. Since 2016, the company has placed 15 key upstream projects online, leading to its record Q1 production in 2018. Meanwhile, BP is on track to increase production by 900 thousand barrels of oil equivalent per day by 2021.

Investors will also note BP’s commitment to its shareholders. The company has been paying dividends to ADS holders for 14 consecutive quarters, and its current dividend yield of 5.1% would certainly attract any income-focused investor. BP expects operating cash flow to improve 23% in 2018, and many believe a dividend hike is in the cards. This likely explains why BP has surged nearly 36% over the past year, outpacing its industry’s rally of 21.6%.


Finally, we should also note that a number of key valuation metrics for BP look pretty solid right now. The stock is currently trading at about 14x forward earnings, which is a slight premium to its industry’s average of 12x—but definitely still within reason.

Meanwhile, the stock has a PEG ratio of 0.8, which is a discount to the industry’s 1.2 average PEG. This shows that investors are getting a decent price for BP’s earnings growth prospects. Investors will also notice that BP’s P/S ratio of 0.6 is a discount to the industry average.

Bottom Line

Rising oil prices have probably led many investors to consider adding strong oil stocks to their portfolios, and BP certainly looks like a great candidate. BP’s earnings outlook is improving, its business is solid, and its valuation is attractive.

Want more market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!

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