BP: Be Cautious About Chasing This Rally

Aug. 06, 2022 5:47 AM ETBP p.l.c. (BP)11 Comments

Summary

  • BP reported a record Q2 in replacement-cost profit, which benefited significantly from a massive run-up in oil and gas prices. The company also improved its capital allocation policies.
  • Our analysis suggests that the market has correctly anticipated a robust Q2, as it formed a bottom in July. However, we believe much of its near-term upside has been reflected.
  • Investors need to be cautious about chasing the current rally in BP, as its revenue and operating cash flow growth could have peaked in Q2.
  • Therefore, we reiterate our Hold rating on BP and urge caution at the current levels.
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BP Retail Gas Station. BP and British Petroleum is a global British oil and gas company headquartered in London.

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Thesis

BP p.l.c. (NYSE:BP) reported a robust Q2, increased its distribution, and a further stock repurchase to the delight of investors as it benefited from robust oil and gas prices.

We also highlighted in our July update that BP

BP revenue change % and adjusted EBIT margins % consensus estimates

BP revenue change % and adjusted EBIT margins % consensus estimates (S&P Cap IQ)

BP operating cash flow change % consensus estimates

BP operating cash flow change % consensus estimates (S&P Cap IQ)

BP price chart (weekly)

BP price chart (weekly) (TradingView)

Brent crude price chart (weekly)

Brent crude price chart (weekly) (TradingView)

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Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such 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.

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