Analysts Expect BP Recovery to Continue

Nov.10.10 | About: BP p.l.c. (BP)

By Sheena Lee

BP got a boost Tuesday after a presidential commission said the Gulf oil spill could not be blamed on cost-cutting by the beleaguered oil giant. The company’s share price has slowly recouped some of its oil-spill-inspired losses over the last three months, and with last week’s news that earnings beat [see call transcript] expectations, most analysts remain optimistic that the recovery will continue.

The median price based on the the thirteen most recent targets tracked by Alacra Pulse is 510p, unchanged from a month ago. That’s still 15% higher than Monday’s closing price of 444p. The mean target of these analysts slipped slightly to $501.08 from $507.69. All but one of them have a positive rating on the company.

Current 12-month price targets of selected analysts. Click image to enlarge.
Click to enlarge

Societe Generale analyst Evengy Solovyov, who rates BP shares a Buy and maintains a 12-month price target of 495 pence, said the underlying numbers look “unaffected” by the spill-related disturbances. “Adjusted for divestments and spill costs, BP’s performance remains strong,” the analyst wrote in a note.

Evolution Securities analyst Richard Griffith maintained a Buy recommendation for BP, with a target price of 510 pence, “as we believe the true liability for the Macondo accident to be nearer $25-30 billion as opposed to the around $60 billion the market is discounting.”

Goldman Sachs analyst Michele della Vigna upgraded BP from Neutral to Buy, following strong third quarter results and an attractive valuation. BP is now trading at a discount after cash outflow associated with the Gulf of Mexico oil spill, said Vigna, who has a 540 pence price target. The oil company has also achieved $14 billion on assets sales so far this year and is targeting another $10-$15 billion in the next 12 months.

Peter Hitchens, analyst at Panmure Gordon, said that at the operating level, BP produced a better than expected performance in both the exploration, production, refining and marketing businesses. Hitchens maintains a Buy rating and high-end 600 pence price target on BP. He said the company “remains our preferred play amongst the international integrated majors. We believe that the shares have overreacted to the Macondo incident and that, as the outcome of the litigation gradually becomes clearer, the shares should bounce.”

However, concerns still remain over the company’s legal exposure stemming from the spill, according to Kim Fustier, an analyst at Credit Suisse, who has a 515 pence price target and Outperform rating on the stock. “The extent of economic damages is another key uncertainty, but we think the $20 billion figure for the escrow account might be conservative,” Fustier wrote in a research note.

HSBC analyst Paul Spedding cut his price target on BP to 490 pence from 500 pence and has an Overweight rating on the stock.

BP said it would also consider whether to reinstate its dividend payments in early 2011 and highlighted the strength of its cash flow. Gordon Gray at Collins Stewart, who has a Buy rating and 475 pence price target on BP, said he expected the dividend to be reinstated for the fourth quarter, at half the previous level.

(Sources: Alacra Pulse, Forbes, MarketWatch, StreetInsider, Reuters, Associated Press, Interactive Investor, CNN Money, CNBC)