It is now the month of November and NYSE:BP is relatively unchanged from when last wrote about it back in May.
The structure I proposed (a risk reversal) had it moments but by and large spent the bulk of the time operating at a loss and is still at a loss (puts are profitable but the calls have lost the bulk of their value).
I still remain a fan of BP and am still a fan of doing a risk reversal. The trade I spoke of back in May would have been a Tier 1 trade. While there have been better opportunities to acquire a second tier of BP I did not write in a timely manner on it.
BP remains a core part of my portfolio but I also trade weekly and monthly options as a way to enhance gains while we remain in the range bound environment. These weekly and monthly option strategies are more aggressive than the longer term strategies I write about.
Some fundamentals of BP to update readers:
- Consensus 2012 FYE EPS of $6.45. A 15% haircut would reduce that to $5.78.
- $45,283 million in gross debt
- $17,997 million in cash
- $78,161 equity net of intangibles and goodwill
Some valuation comparisons for BP peers:
- Conoco Phillips (COP) has 2012 FYE estimates of $8.30 for a P/E of 8.54.
- Exxon Mobile (XOM) has 2012 FYE estimates of $8.42 for a P/E of 9.32.
- Chevron (CVX) has 2012 FYE estimates of $12.65 for a P/E of 8.41.
BP trades (as of Friday’s close) at a 6.79 P/E based on the $6.45 EPS or a 7.58 P/E based on the 15% reduction in EPS or $5.78 EPS.
The reasoning behind the 15% haircut in EPS was to allow for a lower overall realization price on oil and natural gas (see
