BP plc Could Be Worth 893p

BPAs the pain of the Gulf of Mexico disaster lessens further, BP is starting to do well again.

Its share price, now at 509p, has just about beaten the FTSE 100 over the past 12 months, gaining 10% compared to the index’s 8% — but with a better dividend yield of about 4.5% compared to the FTSE’s 3%.

Earnings up and down

We’ve had erratic years of earnings, with rising exploration costs taking their toll across the sector. In fact, analysts are forecasting a 35% fall in earnings per share (EPS) from BP for the year ending December 2014, although the shares would still only be on a P/E of 10.5.

And after that, we have modest but consistent EPS growth being forecast — from the EPS of 48p forecast for this year, there’s a guess at 54.5p by 2018 being offered. We can’t put too much credence on that just yet, of course, but just for fun we can work out what it might do for the share price.

Assuming that BP shares revert to the FTSE’s long-term average of 14, that EPS figure of 54.5p would suggest a price of 763p by the end of 2018, for a pretty nice gain of 50%.

And the cash

That, of course, doesn’t include dividends, so how much might those add?

Predictions suggest the annual cash payout should rise in line with earnings, with a possible extra 128p per share to add to the pot.

The total then? An even nicer 891p in five years time, for an overall gain of 75%.

And that really is an attractive prospect. But do the City folks think we should be buying BP shares?

Well, of a sample of 34 forecasting, 14 think we should with only one believing we should sell BP — the rest are sticking with Hold.

Commenting on BP’s 2013 results in February, chief executive Bob Dudley told us the year’s achievements “underpin our financial targets for 2014 and lay the foundation for continued growth in sustainable free cash flow“.

Now, I know company bosses usually say things like that, but in this case the indications are that he’s right.


And the firm’s share buy-back programme started in March 2013 should help too. Of a planned $8bn, $6.8bn had been spent on buybacks by the end of the year — and that should help spread future profits and dividends amongst fewer shares.

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Alan does not own any shares in BP or Tesco. The Motley Fool owns shares in Tesco.