BP (LSE: BP.) shares have had a stellar run recently. Over the last year, they’ve climbed from 392p to 532p – a gain of around 36%.
Are they worth buying today? Let’s discuss.
Swimming in cash
There’s a lot to like about BP right now, to my mind. The company has momentum, for a start.
This is illustrated by its recent full-year 2022 results. For the 12 months, the oil giant posted an underlying replacement cost profit of $27.7bn versus $12.8bn a year earlier.
Surplus cash flow was $19.3bn, compared to $6.3bn in 2021. So the company is currently swimming in cash.
10% dividend increase
Secondly, the group is returning a significant amount of this cash to shareholders. For 2022, the energy giant declared a dividend of 24.08 cents per share, up 10% year on year. That equates to a yield of around 3.7% at the current share price.
It also announced a further $2.75bn share buyback. Buybacks tend to boost earnings per share over time.
We are delivering for our shareholders – with buybacks and a growing dividend. This is exactly what we said we would do and will continue to do – performing while transforming.
BP 2022 results
Stronger balance sheet
Third, its balance sheet is now much healthier than it was previously. Last year, the group was able to pay off a huge amount of debt. It ended the year with net debt of $21.4bn, compared to $30.6bn a year earlier.
Low valuation
Finally, the company’s valuation is still low. With analysts expecting BP to generate earnings per share of $1.01 this year, the forward-looking price-to-earnings (P/E) ratio is just 6.5. At that valuation, I see room for share price appreciation.
It’s worth noting here that analysts at Credit Suisse just raised their target price for BP shares to 630p, from 550p. That’s nearly 20% above the current share price.
Oil price uncertainty
Of course, the big risk here in the near term is oil prices, as these have a major impact on BP’s profits (and share price).
It’s hard to know where they’ll go from current levels. Recently, oil prices have moved higher after OPEC+ announced it would cut production.
But they could easily fall from here if economic conditions continue to weaken. And a significant fall in the price of oil would most likely hit the BP share price.
Looking further out, the firm’s shift to renewable energy is another risk to consider.
The aim is to become a clean energy company and the shift from fossil fuels to clean energy won’t be easy. There’s no guarantee it will be successful.
My view
Overall though, I think the shares look attractive today and I think they go higher from here. That said, there are probably a few other stocks I’d snap up before BP.
