BP share price remained in a consolidation mode this week as the market focused on the relatively elevated price of crude oil and natural gas prices. It has a market cap of more than 93 billion pounds, making it one of the biggest firms in the FTSE 100 index. BP shares have risen by more than 34% this year.
BP, like other energy companies has had a strong bullish trend in 2022 due to the rising oil and gas prices. Strong demand for all energy products has led to substantial profits and shareholder returns in the past few months. Brent, which started the year at about $70, has surged to about $92 while West Texas Intermediate (WTI) has risen to about $87.
The most recent results showed that BP had about $6.6 billion cash flow surplus. It is using $3.5 billion of these funds to repurchase its stock and analysts believe that these buybacks will continue. The company has a dividend yield of about 4.8%, which is a good one although it is lower than UK’s inflation. This dividend is safe since BP has a payout ratio of 3.32%.It has a forward PE ratio of 4.81%.
Meanwhile, BP is significantly undervalued. According to SeekingAlpha, the company has a forward PE ratio of 3.5x. In contrast, companies like Chevron, ExxonMobil, and Occidental have a forward PE of over 5x. Therefore, it seems like the stock is a bargain since BP is even managing its debt well. Its total debt has reduced to about $60.9 billion. While this is a huge amount, it is worth noting that BP has over $33 billion in cash, leaving a net debt of over $27 billion.
Still, BP carries several risks. For one, it is becoming clear that BP’s operations in North America have challenges. Three weeks ago, two people were injured in a plant in Ohio. Its other plants have had some issues in the past few years.
The daily chart shows that the BP stock price has been in a consolidation phase in the past few days. This consolidation is part of the formation of the handle section of the cup and handle pattern. The price has managed to move above the 25-day and 50-day moving averages while the MACD has been in a downward trend.
Therefore, the BP share price will likely have a bullish breakout in the near term. If this happens, the next key resistance level to watch will be at 500p. The stop-loss of this trade is at 440p.
This post was last modified on Oct 13, 2022, 09:43 BST 09:43