BP Stock Down 14% This Year, What’s Next?

Despite a 14% decline in its stock price this year, bringing it to approximately $29 per share, we believe BP plc stock (NYSE: BP) has the potential for long-term growth. Although the ongoing geopolitical conflict poses risks that may impact oil and gas prices, the U.S. Energy Information Administration anticipates price stabilization in the coming years. The European integrated energy major’s third-quarter performance reflected the decline in oil prices, which fell 17% amid concerns over global demand. However, the company’s strategic initiatives, including share buybacks and expansion of its low-carbon energy business, are designed to generate cash and mitigate the impact of declining benchmark oil prices. Also, see What’s Happening With EOG’s Stock?

BP’s third-quarter performance marked the company’s weakest quarterly results since Q4 2020 – when the pandemic significantly impacted industry profitability. BP’s underlying replacement cost (RC) profit (used as a proxy for net profit) was $2.3 billion in Q3 2024, surpassing analyst forecasts of $2.1 billion. This result represents a decline from the $2.8 billion net profit recorded in the second quarter of this year and the $3.3 billion net profit reported in Q3 2023. Its Q3 revenue declined 11% year-over-year (y-o-y) to $47 billion, mainly due to lower product and crude prices, and its adjusted EPADS (Earnings per American Depository Share) fell 28% y-o-y to 83 cents. The company’s net debt increased to $24.3 billion compared to $22.6 billion in the second quarter of 2024, primarily driven by lower operating cash flow, higher capital expenditures, and lower divestment and other proceeds. That said, if you want upside with a smoother ride than an individual stock, consider the High Quality portfolio, which has outperformed the S&P, and clocked >91% returns since inception.

BP disclosed plans to implement an additional $3.5 billion share buyback program for the second half of 2024 (a $1.75 billion share buyback was already completed for Q3’24), supplementing its initial $3.5 billion commitment for the first half of the fiscal year. This incremental program represents approximately 3.5% of the company’s current market capitalization, potentially providing support to the stock price. The company has also reaffirmed its intention to repurchase shares worth at least $14 billion by 2025, potentially yielding further benefits for shareholders.

For the full year 2024, BP expects both reported and underlying upstream production to be slightly higher compared with 2023. Within this, BP expects underlying production from oil production & operations to be higher and production from gas & low-carbon energy to be lower. It also expects capital expenditure, including inorganic capital expenditure, to be around $16 billion in 2024. BP expects divestment and other proceeds of over $3 billion in 2024. BP also continues to expect to reach $25 billion of divestment and other proceeds between the second half of 2020 and 2025.

We forecast BP revenues to be $200 billion for the fiscal year 2024, down 6% y-o-y. Given our revenues and EPS forecast changes, we have revised BP Valuation to $37 per share, based on a $3.67 expected EPS and a 10.1x P/E multiple for the fiscal year 2024. That said, the company’s stock appears cheap at the current levels, with our valuation at a 28% premium from the current market price (Dec 30).

BP is one of a handful of stocks that have increased their value in each of the last 3 years, but that still wasn’t enough for it to consistently beat the market. Returns for the stock were 36% in 2021, 39% in 2022, and 6% in 2023. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is less volatile. And it has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics.

Beyond oil and gas production, BP also invests heavily in charging stations, biofuels, hydrogen fuels, and fueling stations. As of 2023, more than 30% of its total spending was allocated to these businesses, up from 3% in 2019. Initially, the company demonstrated leadership in the energy sector by pledging to achieve net-zero emissions by 2050 or earlier. However, in a revised commitment, the organization has now set a target to reduce its overall emissions by 35% to 40% by the end of the current decade. This adjustment reflects a recalibration of the company’s climate strategy, acknowledging the necessity to continue investing in oil and gas operations to meet ongoing demand.

It is helpful to see how its peers stack up. Check out how BP’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 12/30/2024
[2] Cumulative total returns since the end of 2016