The performance of shares in BP (LSE: BP) (NYSE: BP.US) has been roughly in line with the FTSE 100 thus far in 2014, with the oil major being up 3% and the index being up 2% year-to-date. This may, at first, appear disappointing after BP experienced a far more prosperous 2013 than 2012. However, with ongoing tensions in Ukraine and the uncertainty surrounding doing business in Russia, it is perhaps surprising that BP’s share price has held up so well, given its 19.75% stake in Russian oil firm, Rosneft.
So, while market sentiment has been relatively strong, could 2014 and beyond turn out to be a relatively strong period for BP’s share price? Could the company deliver strong growth and outperform the wider index going forward?
Volatile Forecasts
As with many of the major oil companies, BP’s bottom line is highly volatile. For example, earnings per share (EPS) more than doubled in 2013, but are forecast to fall by one-third in 2014. Certainly, asset disposals have had a major impact upon BP’s profitability in recent years and have seen the company’s balance sheet shrink considerably since the Deepwater Horizon oil spill just over four years ago.
However, BP continues to own a relatively attractive group of assets that, dependent upon the price of oil, could generate medium- to long-term growth in profit for the company. In other words, although a shadow of its former self (in terms of size), BP’s future profitability could surprise on the upside due to a relatively strong asset base. Indeed, growth of 6% in EPS is forecast for 2015, which could signal the start of a period of reduced change for the business after what has been a highly eventful four years.
Valuation
Trading on a price to earnings (P/E) ratio of just 10.4, BP appears to offer good value when compared to the FTSE 100, which has a P/E of 13.8. Furthermore, BP’s forecast growth rate in earnings in 2015 is roughly in line with that of the market (6%), so the price to earnings growth (PEG) ratio for BP is around 1.7 – considerably less than that of the wider index on 2.3 (which is encouraging for investors in BP). This means that BP could perform relatively well, mainly as a result of its shares trading at a discount to the wider index.
So, while uncertainty surrounding Ukraine could dampen sentiment in BP’s shares in the short run, the company continues to have an asset base that could deliver improved profitability going forward. This, combined with a good value share price, means that although BP may not be a super growth stock at present, it has the potential be classed as one over the longer term.
