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Wow, has any energy stock sold-off harder than BP (BP) over the last month? BP shares rallied hard during the nearly six-month rally heading into April, topping out at around $48 a share when oil prices peaked at around $110 a barrel.

Indeed, while the S&P 500 and its tracking exchange traded fund, SPY (SPY), has rallied over 20% in the past year, and stocks such as Apple (AAPL) are up over 30% in the last year, shares of BP rallied over 30% on the prospects of improving global growth and rising oil prices, as well as the increasingly likelihood that the company would be able to reach a favorable settlement with civil plaintiffs, the Gulf States, and the federal government.

(www.thestreet.com)

However, BP shares have also sold off harder than most energy stocks during the recent sell-off, and the company's shares have lagged the S&P 500 and most of the broader indexes by a fairly wide margin over the last couple weeks.

(www.thestreet.com)

As we can see, BP shares have lagged the S&P 500 by about 6% over the last month. BP's stock has also sold off nearly 15% in the last three months.

(www.thestreet.com)

Given the recent sell-off in BP shares, I think it is interesting that Barclay's recently came out and downgraded BP to "underweight", saying the stock will likely not be able to move higher over the next 12 months since there is little sign the company is close to a settlement with the federal government and Gulf States.

In addition to this downgrade being based on information that is already known, I completely disagree with the analysis.

While I am not an expert on energy issues, as an attorney, I do understand the settlement process well.

First, BP reached a historically large civil settlement with nearly all major civil plaintiffs this past week. While the settlement took years to reach, BP managed to settle most of these civil claims for around $7.8 billion, which is in line with the company's liability projections from several years ago.

Second, there are strong signs the federal government is looking to settle with BP. In addition to taking BP Gulf Coast refinery unit off of criminal probation this past year despite pending violations, the government has also begun to speed up the permit process for new drilling projects for a number of companies in the Gulf, including BP.

The federal government also specifically structured the previously created spill fund to enable BP to stay in business and make smaller payments over longer periods of time.

While the federal government and the Gulf States likely did not want to intervene or effect the civil lawsuit, BP is also still one of the largest employers in the Gulf, and the company has sold very few of its deepwater assets in the Gulf region.

To conclude, today oil prices are at around $95 a barrel despite the recent sell-off, BP recently raised the company's nearly 5% dividend by 14% just last year, and the company is trading at just 6x an average estimate of next year's likely earnings. BP's current dividend payout ratio of nearly 16% of the company's revenue is also lower than the payout ratio of Exxon Mobil (XOM) and Chevron (CVX), and much lower than BP's historical payout ratio of around 40%.

While owning a company that is underperforming the market is always difficult, BP's fundamentals remain strong, and all indications are the company's total liabilities will come in below management's $40 billion dollar estimates given several years ago.

Source: The BP Downgrade: An Example Of A Downgrade To Buy Into