BP Share Price Is Currently Undervalued: Should You Buy?

BP P.L.C., a British multinational oil and gas company, is in the spotlight currently. BP’s share price is trading at 439.60 GBX on the London Stock Exchange, making it one of the largest companies in its sector by revenue and profit. But is its stock a strong buy? What do the analysts forecast for its share?

Almost two decades ago, the firm’s net was worth more than Shell’s, another major UK oil and gas company. That was the time when John Browne was running the company, and he used to search for potential partnerships or mergers to bolster production. There were rumours of a merger with Shell, but Shell didn’t agree to the proposal at that time. However, with BP’s shares plummeting and its value decreasing, Shell might be more open to the idea now. The companies haven’t agreed to anything yet, but investors are speculating about the possible partnership.

BP’s market cap is currently 73.73 billion and has been underperforming for the last several months. The company is trading on the bearish territory, losing significant amounts of money. Furthermore, its market value includes net debt that has increased 2.8 times compared to the analysts’ 2025 forecast.

Shell’s net debt also soared 4.3 times compared to the experts’ predictions.

While there are some benefits to the merger between these two companies, there are also many drawbacks that could ultimately make it a bad decision. For example, both firms are quite old; they have been around for more than a century, and there’s a significant difference between their cultures and the way they do things. Besides, bureaucratic complications might also take time and funds.

The historical examples show that such cases don’t go smoothly. After Mobil and Exxon merged in the 1990s, Brent oil prices plunged to $15 per barrel. For comparison, the barrel’s price is $80 now.

Where Does the BP Share Stand Today?

BP/GBX 5-Day Chart

Despite its extended bearish trajectory, the company reported satisfactory half-year results. Consequently, its stock soared a little with positive news. The BP share price today stands at 439.60 GBX, trading higher by 0.86%.

According to the new data, its half-year dividend surged by 10%. The firm has been increasing the shareholder’s returns each year since 2022. Analysts think that it will continue rising in 2025, as well.

Even though the stock weathered some hard times, investors are optimistic about it. They believe that BP has a strong potential and are eager to try it out as a part of their diversified portfolio. But before buying this stock, you should consider that it has suffered significantly in the past decades, and there were times when the dividend hasn’t been increasing at all, rather the opposite.

For example, the company had to cut its revenue in 2020 and 2021. That was mostly due to the COVID-19 pandemic, but still, such unexpected calamities happen. Besides, there’s a much more important reason for this stock’s volatility. Its operations are cyclical, and that poses a risk for shareholders. If they calculate the timing wrong, there’s a big chance of losing funds with their BP shares.

What About the Benefits?

Every coin has both sides, and the BP stock also comes with its shares of benefits. Yes, commodity markets are often volatile and unpredictable, and the stocks suffer as a result, but what about the advantages?

As the report showed, the company’s operating cash flow is almost similar to the year-ago figures, and its net debt hasn’t increased much. That is good news, indicating that BP is stable. Thus, there’s a chance that its price fluctuations will end with a recovery in the near future.

While the firm’s earnings tend to be erratic sometimes, its cash flow remains strong. Besides, the dividend increase shows that the firm is robust and can weather the current bearish sentiment.

In addition, the BP share price forecasts claim that its dividend yield might hit 5.5% in 2025. That’s not a small amount.

Chief executive Murray Auchincloss stated that the company plans to achieve higher value by focusing on the important parts of running the business and doing it in a simple way, without unwanted complications. He also expects shareholders’ revenue to increase more in the coming years.

Considering the firm’s age, its desire to focus on new venues and continue developing seems promising. If it manages to target areas with more potential and maintains operational high quality, it will see more gains in the future. After all, it deals in an industry known for its high profitability.

Auchinloss also noted that the management decided to continue the Kaskida development in the Gulf of Mexico. And it will become a full owner of BP Bunge Bioenergia. However, the company will reduce its involvement in new biofuels projects.

Some top analysts think this stock might make a good long-term investment. But, investors should consider the stock market’s volatility before committing to its shares.

What Is the BP Share Price Forecast For 2024?

As we have mentioned, the stock fluctuated over the last few months. As a result, it remained mostly flat in 2024. Despite that, some analysts believe it can rally in the long term.

According to the BP share price predictions, the stock will soar by 7.76% in the coming days. It might even hit $ 35.56 per share by August 10, 2024. Furthermore, technical indicators show that the current investor sentiment remains bearish. The Fear & Greed Index stands at 39, indicating Fear.

The company’s underlying replacement cost profit plummeted by almost 50% in the first quarter of 2024, dropping to $2.72 billion from $4.96 billion. That was mainly due to the commodity market’s overall downfall. The prices of various assets suffered greatly because of the investors’ bearish sentiment. And let’s not forget a prolonged outage that took place at BP’s Whiting refinery in Indiana. The latter also influenced the stock price.

On a positive note, BP’s hydrocarbon production jumped by 8% year-over-year (yoy) in the first quarter, hitting 1.46 million barrels of oil equivalent. But the low-carbon energy and gas output decreased by 6%, reaching 914K.

Consequently, the company’s first-quarter revenue plunged by 13% year-to-year, falling to $49 billion. Despite that, the firm announced that it planned to buy shares of $1.75 billion value in Q1 as a part of its strategy to purchase $3.5 billion in shares overall. This figure encompasses roughly 3.5% of BP’s current market cap.

However, the team isn’t stopping at that. It aims to continue buyback and acquire shares worth at least $14 billion by 2025. That will strengthen the stock significantly.

Should You Buy BP or Sell It?

BP stated that it expects higher returns in the coming year, as it took some calculated risks to achieve more success in the market.

However, a lot depends on whether OPEC+ announces new cutbacks in oil production. The fears about the US economy’s recession might also affect the BP stock, along with the global demand for commodities.

The management plans to cut at least $2 billion in costs in 2026. It managed to increase the stock value for the last three years, which is quite significant.

Moreover, revenue for the shares was 30% in 2021, then increased by 1 per cent in 2022, reaching 31%, but plunged to 1% in 2023.

While this stock might not be ideal for short-term traders, it has much more potential for long-term ones. Some analysts recommend holding it, while others think now isa good time for buying as the price is lower and might increase in the future.

Still, investors should conduct thorough research before committing to this stock. Remember that commodity markets are volatile, and that makes losing your hard-earned capital easier. Stay tuned for the hottest news to learn what’s happening in the financial markets!

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