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Key Reasons Why You Should Steer Clear of BP Stock Right Away

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If you are still holding on to BP plc’s (BP - Free Report) stock, it is time you reconsider it as the chances of reaping handsome returns from it are bleak.

Over the past three months, the stock has lost 8.6%, underperforming the 5.6% collective decline of the stocks belonging to the industry. Further, the company’s Zacks Rank #5 (Strong Sell) reflects its innate weakness.

Things Working Against

BP’s balance sheet is significantly more levered than the industry it belongs to. Its debt-to-capitalization ratio stands at 41.8%, considerably higher than the industry’s 26.3%.

Apart from comparatively limited financial flexibility, the oil spill incident of 2010 in the BP-operated Macondo Prospect is affecting the company. Although BP has cleared the huge litigation fine related to the spill, it had to divest some of its best operating properties. The asset sales might keep BP from cashing in on opportunities.

Through 2018, the integrated energy firm has made a payment of $3.2 billion, after tax, associated with the oil spill incident in the Gulf of Mexico. BP continues to project oil spill payment of roughly $2 billion for 2019.

Moreover, the business scenario of the company’s large-scale upstream operations is not favorable given the weakness in the oil price scenario. With factors like soft demand and a crude oil supply glut hurting the commodity, the integrated energy player is unlikely to generate high returns from its upstream business. 

The negative factors are being reflected in the downward earnings estimate revision of the stock for 2019. Over the past 30 days, the Zacks Consensus Estimate for BP’s 2019 earnings has been revised downward to $3.22 from $3.41. In fact, the consensus estimate calls for a year-over-year decline of 15.3%.

Stocks to Consider

Three prospective players in the energy space are Enterprise Products Partners L.P. (EPD - Free Report) , Helix Energy Solutions Group, Inc. (HLX - Free Report) and Approach Resources Inc. . All the stocks sport a Zacks Rank #1 (Strong Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.

Enterprise Products beat the Zacks Consensus Estimate for earnings in the last four quarters.

Helix Energy is likely to see earnings growth of 47.4% through 2019.

Approach has surpassed the Zacks Consensus Estimate for its bottom line in three of the last four quarters.

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BP p.l.c. (BP) - free report >>

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