Right now I’m looking at some of the most popular companies in the FTSE 100 to try and establish whether or not they have the potential to return to historic highs.
Today I’m looking at BP (LSE: BP) (NYSE: BP.US) to ascertain if its share price can return to 712p.
Initial catalyst
As usual, before we establish if BP can return to 712p per share, we need to figure out what caused the company to hit this all-time high in the first place.
BP hit its peak back in 2006, after an impressive performance during 2005 when the company managed to drive year-on-year profits higher by 25%. In addition, the company boosted its 2005 full-year dividend by 26%.
Moreover, earnings growth of 25% took BP’s earnings per share for 2005 to 55.6p, so at a share price of 712p, BP was trading at a historic P/E of 12.8 — not too taxing considering the company’s rapid growth.
But can BP return to its former glory?
As we all know, since the Gulf of Mexico disaster BP has had trouble trying to get back on its feet. What’s more, the company continues to fight claims and acquisitions concerning its reaction to the disaster and, of now, the end does not appear to be in sight.
That being said, although the Macondo disaster has cost BP in excess of $40 billion, the company is still one of the largest integrated oil and gas companies in the world. Furthermore, while BP has sold of a large volume of assets to fund claims from the spill, the company’s total shareholder equity is still similar to the level reported for 2005. This indicates that if the company can get its act together, there is scope for profits and earnings to return to 2005 levels.
Unfortunately, BP’s profits are still a long way off returning to those levels. Indeed, the company reported a net profit of $11.5 billion for 2012, half the $22.6 billion the company reported during 2005.
Still, thanks to share buyback operations, BP’s number of shares outstanding was around 13% less during 2012 than 2005. So BP should find it easier to drive its earnings per share figure back to 2005 levels.
Foolish summary
So overall, BP has the ability to generate earnings similar to the levels achieved during 2005, which should be able to drive the share price back to 712p.
However, until the company has distanced itself from the Gulf of Mexico disaster, investors are likely to remain anxious around the company.
