This Oil & Gas Giant's Resurging Image Will Pay Off In 2013
Jordo is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Due to its low trading price and brand familiarity, BP (NYSE: BP) has strong growth potential industry-wide. BP recently released a promising earnings report and updates on current projects. BP is succeeding with its 10-point plan as it divests non-core assets and improves safety in conjunction with operational efficiency. I believe BP has the potential to be the strongest growth stock in the integrated energy sector in the mid-term.
An In Depth Look At Third Quarter Earnings
BP's third quarter earnings report revealed sales and other operating revenues declined in line with purchases by around $5 billion. Total third quarter comprehensive income nearly doubled to $6.72 billion, exemplary of more efficient returns on operations. Third quarter profit attributable to BP increased marginally from 2011 to $5.43 billion while increasing significantly from a $1.38 billion net loss sequentially. The decline in purchases alongside the increase in profit also shows BP's ability to improve operational efficiency.
Third quarter natural gas production totaled 6.44 bcf per day, decreasing from 6.54 bcf per day YOY. Liquids production totaled 1.14 mmbbls per day, decreasing from 1.19 mmbbls per day YOY. Excluding divestments, production has declined marginally; BP's earnings and revenues should increase significantly as the commodity markets stabilize and the firm continues to reduce its operating expenses. On its recent third quarter earnings call, BP provided more details regarding its current operations.
High refining margins and effective operations improved BP's downstream margins for the third quarter; the refining marker margin averaged $19.50 per barrel. This was the highest rate since the third quarter 2005, primarily due to lower worldwide diesel and gasoline inventories combined with closers in the Atlantic Basin. BP expects refinery margins to decline with season trends for the fourth quarter, but BP will also be undergoing substantial turnarounds at two refineries during the fourth quarter. BP expects the Whiting refinery to initiate start-up during the second half of 2013. Upstream earnings decreased due to the $4 per barrel decline in Brent crude and the $1.40 per mcf decline in natural gas. Investors can expect an uptick in BP's 2013 price as the commodity projects begin to stabilize and refinery projects come online.
Safety at BP is improving; the incident rate has declined 25% year-to-date (YTD). Shareholders should rejoice as continuously improving safety across the entire portfolio remains a top priority for BP management. Planned outages at BP facilities have decreased 60% YOY. BP has completed 80% of its turnaround in 2012, and it has eight more TARs planned before 2013. The improved safety is imperative for BP; assuming minimal risks of a repeat disaster and its low stock price, BP is the most appealing major integrated energy firm to invest in for ROI in potential capital appreciation.
BP has removed 50% of its upstream installations, 50% of its pipelines, and 32% of its wells while only divesting 9% of its production; this underscores the strength of BP's operations looking forward. BP's 15 high-margin upstream projects are expected to start in 2014 and are projected to double the average cash margin from the 2011 portfolio. This potential margin growth is another obvious reason to invest in this major brand energy firm currently available at a discount. BP progressed from 55% complete in early 2012 to 75% complete on these projects as of the end of the third quarter 2012. The ability to remain on track with increasing operating cash flow 50% by 2014 while improving operational simplicity alongside mitigating potential risks for another disaster makes it very appealing to initiate a position on BP's stock before the market price begins to recover.
Chevron (NYSE: CVX), ExxonMobil (NYSE: XOM), ConocoPhillips (NYSE: COP), and Total (NYSE: TOT) are the integrated energy firms most comparable to BP. BP's price is around 8.0 times earnings, 0.35 times sales, and 1.22 times its book value. BP has the lowest valuation among these firms while ConocoPhillips and Exxon have some of the highest price ratios. BP's debt-to-equity ratio is around 0.42 while Total's 0.47 debt-to-equity ratio is the highest among the firms. BP's annualized dividend is around $1.92 per share. BP's 7.1% sales growth over the past five years is the highest among the firms, Chevron's 3.8% sales growth is the lowest. The adequate dividend and high long-term sales growth alongside the low trading price and low valuation metrics make BP an obvious choice for aggressive investors.
BP's 0.18% float short, 1.1 short ratio and $5.38 EPS are the lowest among the firms. However, BP's 777.9% EPS increase in 2012 and 7.2% projected EPS growth in 2013 are the highest among the firms. BP's beta is around 1.2, its average volume is around 5.09 million and its relative volume is around 1.08. BP's strong EPS growth, high beta and relative volume, adequate average volume and low short metrics all indicate that this is currently an attractive growth stock. BP's ROE is around 15.7%, its operating margin is around 6.9% and its profit margin is around 4.5%. BP's lower margins indicate potential for growth once the firm is through its current transitional phase.
BP's stock has increased around 4.1% YTD, around 1.9% over the past month and has increased around 7.1% since its last earnings release. Aside from improving profits and declining expenses, BP's high EPS growth, high beta, high long-term sales growth, low valuation, and low trading price indicate its strong potential as a growth stock amongst the major energy firms. BP's successful and improved operations will soon outshine its infamous reputation. Interested investors should initiate a position in the near term as the stock is due for a substantial rally as BP makes more progress toward a prominent rebound from the Deepwater Horizon spill.
jordobivona has no positions in the stocks mentioned above. The Motley Fool owns shares of ExxonMobil. Motley Fool newsletter services recommend Chevron and Total SA. (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!