BP: Buy Now At A 50% Discount

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

BP p.l.c. (NYSE:BP) is currently trading at more than a 50% discount in comparison to the other major global integrated energy firms. BP is still in the midst of its transformation and divestment phase that will last into 2014. Most of its exploration, core operations and developments are geared for the long term, with start-up projections ranging from the end of 2013 into 2015. BP is still enduring headwinds from pressures in commodity prices, production impediments, and increasing opposition from the DOJ regarding the Deepwater Horizon trial set for January 2013. Fortunately for BP, it's had recent success in developments worldwide.

Integrated energy firms like TOTAL S.A. (NYSE:TOT), Exxon Mobil Corporation (NYSE:XOM), Chevron Corporation (NYSE:CVX) and ConocoPhillips (NYSE:COP) are most comparable to BP due to their large market caps and diverse global portfolios. BP's stock price is lower than all of these firms; its stock is less than half the price of Chevron or Exxon Mobil. BP's market cap is around $128 billion, it's the third largest behind Chevron's $220 billion and Exxon's $405 billion. BP's price is around 7.5 times earnings, BP's price-to-sales ratio is around 0.33 and its price-to-book ratio is around 1.14; all of these are the lowest amongst these firms. ConocoPhillips has the highest price of around 10.6 times earnings and the highest price-to-sales ratio around 1.03.

Total has the closest price-ratios to BP, its price-to-sales ratio is around 0.53 and its price-to-book ratio is 1.24. Total S.A has the highest sales growth of around 10.1% in the last quarter, YOY. BP has the highest sales growth of around 7.1% for the past five years. Chevron has the lowest five-year sales growth at around 3.8%, while its sales deficit for the past quarter YOY, is around 50 bps worse than BP's 8.7% deficit. Chevron's EPS is the highest at around $13.43; BP's EPS of around $5.38 is only higher than ConocoPhillips' $5.18. BP's debt-to-equity ratio of around 0.42 is lower than Total's 0.42 and ConocoPhillips 0.50.

BP's current and quick ratios of 1.24 and 0.9 respectively, are also higher than ConocoPhillips' 0.92 and 0.86 as well as Exxon Mobil's at 1.04 and 0.82, respectively. BP has the lowest gross margin, operating margin and net margin of all these firms; its return on equity of around 15% is higher than ConocoPhillips' 11%. BP's annualized dividend rate of $1.92 and average daily volume of 5.7 million shares is only higher than Total S.A's amongst these firms. BP's beta score is over one and is the highest of all these firms. BP's shares have increased by around 0.9% since its last earnings release.

BP had a loss of $1.38 billion in the second quarter, compared to $5.7 billion profits, YOY. Profits in the first half of 2012 were $4.53 billion, compared to $12.97 billion, YOY. Second quarter debt was $31.7 billion, compared to $27 billion, YOY. BP's natural gas segment operated at a loss in the second quarter and BP's total production decreased 7.4%. BP expects a decline in the third quarter before production rebounds by 2013. But, BP's refinery sales and margins did increase in the second quarter. Total second quarter revenue decreased to $94.89 billion from $103.94 billion, YOY. BP still seems to be on schedule with its 10-point plan of divesting non-core assets, improving projects like the Whiting Refinery and finding the right developments to increase operating cash flow by 50% in 2014 versus 2011.

BP is being sued by six groups of institutional owners over misleading and withholding pivotal safety information regarding the Deepwater Horizon operation. The DOJ also recently made claims that it will prove BP is guilty of gross negligence and corporate recklessness in January's trial regarding the spill. BP will be susceptible to taking on more poor publicity and possibly up to $21 billion in penalties if it does not settle before 2013. These claims from the DOJ came in response to the $7.8 billion settlement BP reached with private sector victims from the spill.

Aside from Deepwater Horizon headlines, there have been several key developments in the news over the past month that will affect BP's stock price in the medium term. BP recently recalled a 50,000 barrel batch of gasoline that was creating mechanical problems in vehicles in Indiana in August. A Siberian court also awarded $3 billion in damages against BP to minority shareholders on behalf of TNK-BP, the joint venture located in Russia that BP's attempting to divest its stake in. BP made a series of divestments in 2012; it has divested $24 billion of the total $38 billion projection to be completed by 2014.

BP has been enduring cost overrun through its 23% stake in the Skarv Project located in Norway. This asset was projected to have 104 million barrels of oil and condensate reserves alongside 42.1 billion cubic meters of natural gas, production is and start-up operations are now expected by 2013. BP also intends to resume drilling 25 wells off the coast of Libya during 2013. BP also recently began drilling the first producing wells at the Atlantis field in the Gulf of Mexico since moratorium was lifted years ago. BP and BHP Billiton (NYSE:BHP) have six rigs working now and have eight planned operating by 2013.

BP recently made its fourth and fifth gas discoveries of gas in North El Bur Concession in the Nile Delta. BP has a 50% stake in this concession and has plans to expand on the existing infrastructure. BP plans to invest $11 billion in its project to unearth natural gas reserves from Egypt's Mediterranean basin. This project will take up to five years to complete and can deliver 40% of Egypt's natural gas output; this accounts for 20% of Egypt's energy production. Egypt will receive this gas for 40% of the price and exploration will start in 2013.

According to the recent earnings release, BP expects declining earnings in the third quarter and expects increased growth in the fourth. It's fair to expect this stock price to decrease further before the trial; this can create effective moments to short sell or short squeeze for current shareholders. BP is a viable asset for capital appreciation in the long term, but there may be more opportune entry points to invest later in 2012 or early in 2013.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.