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When considering companies that will contribute to a strong portfolio, the oil and energy sector offers many candidates. This is especially true when oil and gas prices are high. With the incredible rally oil and energy stocks had over the last year, it's important to consider valuation going forward.
It's also key to note the specific industry within the larger oil and energy sector. BP ((BP - Free Report) ) is part of the Oil and Gas - Integrated-International industry, which ranks in the top 10% out of 252 Zacks Industries.
Quantitative research studies have shown that roughly half of a stock's future price appreciation is due to its industry grouping.
Valuation
BP’s forward P/E of 4.6X showcases its stellar value compared to its highly-ranked industry’s 6.4X average. BP is also trading at a roughly 45% discount to its own year-long highs and 25% below its own median.
Meanwhile, the S&P 500 trades at 17.5X forward 12-month earnings. On top of that, BP is trading at a solid discount to where it has been for most of the last 10 years.
Image Source: Zacks Investment Research
BP recently beat Q2 earnings estimates by 19%. Its FY22 sales are projected to jump 47% according to the Zacks estimate, to hit $240.78 billion and help lift its adjusted earnings by 116%. BP’s earnings are expected to be down next year, but its sales are projected to climb another 2%. BP also has expected earnings growth of 5.7% over the next five years.
What is also intriguing for the stock is the positive earnings revisions, with its FY22 and FY23 consensus estimates up roughly 22% in the last few months, including post-Q2 release positivity. Positive earnings revisions have landed BP a Zacks Rank #1 (Strong Buy) ranking.
Another valuation metric to consider is the earnings yield. This measures the anticipated yield (or return) an investment in a stock could give you based on the earnings and the price paid. It is essentially the inverse of the P/E ratio.
In comparison to the S&P 500, BP's earnings yield might be attractive to investors. The 15% earnings yield is also higher than its industry average of 10.5%.
Image Source: Zacks Investment Research
Long-Term Value
As a long-term investment, BP checks many boxes. The stock has “A” grades in our Zacks Style Scores for both Value and Growth. Year-to-date, BP stock is up around 22% and should have more upside, with BP’s average price target of $35.38 suggesting around 9% upside from its current levels.
Certainly, oil and gas will continue to play a huge role in the global economy. However, as energy use transforms, BP has made a conscious effort to retain value in the industry by investing in a greener future.
For instance, BP has committed to going net zero on carbon by 2050. “Energy markets are fundamentally changing, shifting towards low carbon, driven by societal expectations, technology and changes in consumer preferences,” BP’s Chairman Helge Lund said in Q2 remarks.
“We are confident that the decisions we have taken and the strategy we are setting out today are right for bp, for our shareholders, and for wider society.”
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Should Investors Buy BP Stock?
When considering companies that will contribute to a strong portfolio, the oil and energy sector offers many candidates. This is especially true when oil and gas prices are high. With the incredible rally oil and energy stocks had over the last year, it's important to consider valuation going forward.
It's also key to note the specific industry within the larger oil and energy sector. BP ((BP - Free Report) ) is part of the Oil and Gas - Integrated-International industry, which ranks in the top 10% out of 252 Zacks Industries.
Quantitative research studies have shown that roughly half of a stock's future price appreciation is due to its industry grouping.
Valuation
BP’s forward P/E of 4.6X showcases its stellar value compared to its highly-ranked industry’s 6.4X average. BP is also trading at a roughly 45% discount to its own year-long highs and 25% below its own median.
Meanwhile, the S&P 500 trades at 17.5X forward 12-month earnings. On top of that, BP is trading at a solid discount to where it has been for most of the last 10 years.
Image Source: Zacks Investment Research
BP recently beat Q2 earnings estimates by 19%. Its FY22 sales are projected to jump 47% according to the Zacks estimate, to hit $240.78 billion and help lift its adjusted earnings by 116%. BP’s earnings are expected to be down next year, but its sales are projected to climb another 2%. BP also has expected earnings growth of 5.7% over the next five years.
What is also intriguing for the stock is the positive earnings revisions, with its FY22 and FY23 consensus estimates up roughly 22% in the last few months, including post-Q2 release positivity. Positive earnings revisions have landed BP a Zacks Rank #1 (Strong Buy) ranking.
Another valuation metric to consider is the earnings yield. This measures the anticipated yield (or return) an investment in a stock could give you based on the earnings and the price paid. It is essentially the inverse of the P/E ratio.
In comparison to the S&P 500, BP's earnings yield might be attractive to investors. The 15% earnings yield is also higher than its industry average of 10.5%.
Image Source: Zacks Investment Research
Long-Term Value
As a long-term investment, BP checks many boxes. The stock has “A” grades in our Zacks Style Scores for both Value and Growth. Year-to-date, BP stock is up around 22% and should have more upside, with BP’s average price target of $35.38 suggesting around 9% upside from its current levels.
Certainly, oil and gas will continue to play a huge role in the global economy. However, as energy use transforms, BP has made a conscious effort to retain value in the industry by investing in a greener future.
For instance, BP has committed to going net zero on carbon by 2050. “Energy markets are fundamentally changing, shifting towards low carbon, driven by societal expectations, technology and changes in consumer preferences,” BP’s Chairman Helge Lund said in Q2 remarks.
“We are confident that the decisions we have taken and the strategy we are setting out today are right for bp, for our shareholders, and for wider society.”