Despite facing a 14% drop in stock value this year, BP plc stock (NYSE: BP) trades around $29 per share, indicating potential for long-term growth. The ongoing geopolitical tensions may disrupt oil and gas prices, yet a price rebound is anticipated by the U.S. Energy Information Administration in the coming years. BP’s third-quarter results illustrate the impact of falling oil prices, which declined 17% amid concerns about global demand. However, the company’s initiatives like share buybacks and expansion into low-carbon energy are set to bolster cash flow and offset these price declines.
In fact, BP’s third-quarter performance represents the weakest quarterly results since Q4 2020, when the pandemic severely affected the industry. For Q3 2024, BP reported an underlying replacement cost (RC) profit of $2.3 billion, exceeding analyst expectations of $2.1 billion. However, this reflects a decrease from the $2.8 billion net profit from Q2 2024 and the $3.3 billion net profit from Q3 2023. Additionally, revenue decreased by 11% year-over-year (y-o-y) to $47 billion, primarily due to lower product and crude prices. Adjusted earnings per American Depository Share (EPADS) also fell 28% y-o-y to 83 cents. Notably, net debt rose to $24.3 billion from $22.6 billion in Q2 2024, influenced by lower operating cash flow and elevated capital expenditures.
To enhance shareholder value, BP announced an additional $3.5 billion share buyback program for the second half of 2024, following a completed $1.75 billion buyback for Q3 2024. This new initiative represents about 3.5% of BP’s current market capitalization and supports the stock price. BP also aims to repurchase $14 billion in shares by 2025, which could yield further shareholder benefits.
Looking ahead, BP forecasts an increase in both reported and underlying upstream production compared to 2023. Specifically, oil production is projected to rise, while gas and low-carbon energy production is expected to decrease. Capital expenditure is estimated to be around $16 billion in 2024, with divestment and other proceeds exceeding $3 billion. BP continues to target $25 billion in divestment and proceeds by the end of 2025.
We project BP’s revenue for the fiscal year 2024 to be $200 billion, a decline of 6% y-o-y. Given these forecasts, our valuation for BP stands at $37 per share, based on a projected EPS of $3.67 and a 10.1x price-to-earnings multiple. This valuation reflects a notable premium of 28% over the current market price as of December 30.
Over the past three years, BP is one of the few stocks to have increased in value annually. The stock recorded returns of 36% in 2021, 39% in 2022, and 6% in 2023. In contrast, the Trefis High Quality (HQ) Portfolio, which comprises 30 stocks, has shown less volatility and outperformed the S&P 500 during the same timeframe. This consistent performance illustrates a strategy that yields better returns with lower risk compared to the benchmark.
Additionally, BP is significantly investing in sustainable technologies like charging stations, biofuels, hydrogen fuels, and fueling stations. By 2023, over 30% of its total investments were directed towards green initiatives, a rise from 3% in 2019. Initially, BP aimed for net-zero emissions by 2050 but recently adjusted its target to a 35% to 40% emissions reduction by 2030. This recognizes the need to continue oil and gas operations amid persistent demand while pursuing more sustainable practices.
To understand BP’s performance better, it’s useful to compare it with its peers. Visit the Peer Comparisons section for insightful metrics across the industry.
| Returns | Dec 2024 MTD [1] |
2024 YTD [1] |
2017-24 Total [2] |
| BP Return | -1% | -14% | 23% |
| S&P 500 Return | 0% | 27% | 170% |
| Trefis Reinforced Value Portfolio | -3% | 19% | 707% |
[1] Returns as of 12/30/2024
[2] Cumulative total returns since the end of 2016
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
