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BP: Invest In This 6.1%-Yielding Oil Major Before It Rebounds

Dec. 04, 2018 8:54 AM ETBP p.l.c. (BP)26 Comments
Aristofanis Papadatos profile picture
Aristofanis Papadatos


  • Despite its impressive business performance, BP is trading at an 8-month low due to the recent plunge of the oil price.
  • As a result, BP is now offering a 6.1% dividend yield.
  • The current oil price is unsustainable from a long-term fundamental point of view. Investors should take advantage of the bargain level of BP.

In early October, I predicted that BP (NYSE:BP) would exceed analysts’ estimates by a wide margin in its third-quarter earnings report. Indeed the oil major exceeded the analysts’ earnings-per-share estimates by 34%, as it reported earnings per share of $1.15 whereas the consensus was for $0.86. While the stock rallied 4% upon its earnings release, it is now at an 8-month low due to the recent plunge of the oil price. Nevertheless, in this article, I will analyze why investors should purchase BP at its current price.

Business performance

During the recent downturn of the oil market between 2014 and 2017, BP saw its earnings collapse, just like most of its peers. However, BP utilized that downturn and greatly improved its portfolio of assets in order to be able to thrive at much lower prices than before. Indeed the oil major reduced its breakeven oil price at $50 and its management expects to reduce it further, to $35-$40 by 2021. This is a very important development for the long-term profitability of the company.

In its latest earnings report, BP proved that it is doing its best to improve its profits at a given oil price. In the third quarter, BP reported earnings of $3.8 B, which were 35% higher than the earnings reported in the second quarter. The performance was impressive because the underlying business factors were very similar in the two quarters. The price of Brent and the price of natural gas remained essentially flat in the third quarter so one would expect similar earnings in the two quarters. However, BP grew its earnings by 35% thanks to much higher earnings in supply and trading and an increased contribution from Rosneft.

Moreover, after years without production growth, BP grew its output by 10% last year and expects to grow

This article was written by

Aristofanis Papadatos profile picture
I am a chemical engineer with a MS in Food Technology and Economics. I am also the author of 2 mathematics books ("Arithmetic calculations without a calculator" and "Word Problems") and perform almost all the calculations in my mind, without a calculator, making it easier to make immediate investing decisions among many alternatives. I invest applying fundamental and technical analysis and mainly use options as a tool for both investing and trading. I have nearly achieved my goal of early retirement, at the age of 45. In my spare time, I follow Warren Buffett's principle: "Some men read playboy. I read financial statements".

Analyst’s Disclosure: I am/we are long BP. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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