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Earnings

Will earnings help to reenergise BP’s share price?

BP’s [BP.L] share price has tumbled through 2020, plunging 53.6% for the year to date to 199.96p on 21 October, the lowest BP’s share price has been since 1995. It did recover slightly in the days following, climbing 2.8% to close at 205.50p on 23 October. Will BP’s share price continue to recover after it reports its third quarter earnings on 27 October?

After a poor first quarter, BP’s share price did stage a partial recovery in May, following global crude oil prices turning negative for the first time in history in April. However, in signs that will alarm investors, BP’s share price has fallen to levels below the 222.90p trough of this spring oil crisis, seeing a gradual decline since the company announced its half-year results in August.

BP’s share price performance is slightly worse than that of its rival Exxon Mobil’s [XOM] share price, which has fallen 48.4% in the same period, but is better than Royal Dutch Shell’s [RDS.B] stock, which has fallen 56.3% since January.

In short, this has been a difficult year for the oil industry. Although BP’s share price appears to be in freefall, there are reasons for investors to be hopeful about the company’s longer-term prospects.

 

 

Greener shoots

This year, BP’s share price has been dominated by the impact of the coronavirus pandemic. Empty roads and grounded planes drove crude oil prices to historic negative values. However, this has also paved the way for greener strategies pursued by Bernard Looney, the new CEO of BP, who took over in February.

From purchasing stakes in offshore wind farms to announcing a five-point biodiversity action plan, Looney has led a green revolution at the oil giant and taken big steps towards transitioning BP away from a reliance on oil and other fossil fuels for energy generation.

While these are important steps in the context both of the global environmental crisis and falling prices of oil — demand for which, according to BP’s latest models, has already peaked — the short-term impact on investors has been negative, with BP cutting its dividend this year for the first time since 2010’s Deepwater Horizon oil spill to fund the move towards green energy.

This slashing in half of a historically reliable dividend has been the principal driver of the decline in BP’s stock since Q2 earnings were announced in August.

Investment in future projects combined with ongoing weak oil demand has impacted BP’s profitability in the short-term, but the Q3 results are forecast to show an improvement on Q2.

 

Can BP’s share price recover?

Zacks predicts net sales of $56.57bn this quarter, an encouraging 78.6% increase on the Q2 figure, implying a recovery in demand as global lockdown restrictions have eased.

However, BP is forecast to make a loss of around $0.08 per share given its costs this quarter — not great news for investors, though again a significant improvement on the $1.98 per share loss in Q2. In fact, one of the four estimates polled by Zacks even forecast a profit of $0.01 per share.

However optimistic the projections, though, BP is still on course to fall significantly from the $2.3bn profit reported in the same period in 2019, which in itself represented a year-over-year decrease from the same period in 2018.

Given the unpredictability of BP’s forward-looking investments and strategic shift, analysts appear split on the viability of the company’s stock.

Zacks currently ranks BP’s share price a Sell. However, 27 analysts polled by CNN Money appear more optimistic. The consensus among them was to buy the stock, the opinion given by 13 analysts. Two rated the stock Outperform and eight Hold, with two analysts apiece rating it Underperform and Sell.

Most analysts forecasting the longer-term prospects of BP’s share price feel the stock is currently at its low point. Among 20 analysts offering 12-month price forecasts on MarketBeat the average price target was 396.50p, representing a 92.9% increase on BP’s share price close on 23 October.

Furthermore, the lowest target of 260.00p would represent a 26.5% increase on this price, whereas the highest target of 620.00p implies an increase of 201.7%.

 

Market Cap£4.533bn
Operating Margin (TTM)-1.87%
EPS (TTM)108.3

BP's share price vitals, Yahoo Finance, 26 October 2020

 

Disclaimer Past performance is not a reliable indicator of future results.

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