BP (LSE: BP) shares have been performing exceptionally well recently. They’re up over 12% year-to-date and over 35% over the last 12 months.
The oil and gas giant is set to release its Q1 results on 3 May, and current forecasts expect profits to rise above $16bn for the year in 2022. This is over 25% higher than 2021’s monster $12.8bn profit.
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So, do I think the stock will rise further before results day? And if so, should I be adding it to my portfolio? Let’s take a look.
Oil prices are helping BP shares
It’s no secret that the price of oil has skyrocketed over the few months. At the time of writing, Brent Crude is priced around the $107 per barrel mark. For context, just three months ago it was trading at $86. What’s more, investment bank Morgan Stanley raised its price target $10 higher to $130 for Q3 due to increased supply deficits tied to Russia and Iran.
BP requires oil at $40 a barrel to break even. Therefore, as oil prices remain high, BP can keep generating more and more cash. In fact, CEO Bernard Looney likened the firm to a “cash machine” back in autumn 2021.
Flush with cash, BP has announced it’s starting a share buyback programme. On the assumption of $60 a barrel, the firm should be able to deliver around $4bn of annual share buybacks. If oil prices stay high, it should be able to achieve much higher than this. If all goes well with the buyback programme, I expect BP shares to keep pushing higher.
Encouraging fundamentals
At the current price, BP shares trade on a price-to-earnings (P/E) ratio of 13. Comparing this to competitors Exxon Mobil and Chevron, who trade on P/E ratios of 16 and 20 respectively, I see good value. In addition to this, the shares offer a healthy 4.3% dividend, which could be great for generating some extra passive income for my portfolio.
BP currently has $26bn in cash on its balance sheet. 60% of this is expected to be used for the share buybacks mentioned above, while the remainder is being devoted to renewable and hydrocarbon investments. Debt was also reduced by a sizeable $9bn in 2021, further bolstering the balance sheet.
The verdict
The only real risk I see for BP shares is how the current geopolitical situation continues to pan out. At present, oil supplies are low and sustained demand has pushed prices higher. However, there is no telling how the Russia-Ukraine conflict will affect this situation moving forward. If prices fall back, evidently it would be bad news for BP. While the renewable investment looks strong, there’s also no guarantee that BP will be a frontrunner in the field in decades to come.
However, I think that before the 2022 Q1 earnings release, the stock could continue to creep up on the back of high oil prices. In addition to this, I expect the results to contain some encouraging stats which could push BP shares even higher. With that in mind, and considering the healthy 4.3% dividend, I’m seriously considering buying BP shares for my portfolio today.
