BP Share Price is 32% Overvalued, DCF Calculation Shows

Summary:

The BP share price looks like it is overvalued by about 32% according to a DCF valuation calculation. We explain what to expect soon.

The BP share price will be closely watched after the OPEC+ reached a deal to boost oil production and as the UK eases Covid restrictions. Shares of the British supermajor declined by more than 1.30% on Friday in London and by more than 2% in the United States.

BP news. BP is a leading oil and gas company with more than $180 billion in annual revenue. It operates globally and has more than 70,000 employees. The BP share price has risen by about 15% this year and lagged the prices of crude oil that have risen by more than 50%. Similarly, the Royal Dutch Shell share price has struggled while American supermajors like Chevron and ExxonMobil have bounced back.

The BP share price will be in the spotlight in London and New York after the latest OPEC+ deal. The members agreed to start hiking production by about 400k barrels in a major victory for the United Arab Emirates (UAE). However, the price of crude oil declined by more than 1% when the market opened today. Natural gas prices also declined by more than 0.60%. Therefore, there is a possibility that the company’s share price will retreat today.

The BP stock will also react to the UK Freedom Day that happens today. This is when the country ends all its lockdowns and Covid restrictions. This could be a good catalyst for the stock since it will mean more demand.

So, is the BP share price a buy or a sell? Analysts are generally optmistic about the latest BP stock. Those at HSBC, Barclays, and JP Morgan expect that the stock will rise to more than 400p. This is substantially high considering that the stock is trading at 292p. However, a DCF valuation calculation shows that the stock is 32% overvalued. The estimate puts its fair value at 220p.

BP share price forecast

The daily chart shows that the BP stock has been under pressure recently. It has dropped by more than 14% from its year-to-date high. It has also dropped below the 25-day and 50-day moving average. Further, it has moved below the lower line of the rising wedge pattern.

Therefore, the path of least resistance for the stock is lower. If this happens, the shares will likely move to the next key support at 250p. On the flip side, a move above the resistance at 320p will invalidate this price action. This prediction is in line with my earlier forecast.