BP (LSE: BP) is set to release its first-quarter results tomorrow, and many analysts believe that the company is set to reveal a 60% fall in profits.
In particular, analysts expect BP’s underlying replacement “costs profits” — a measure that incorporates fluctuations in the price of oil — to fall to $1.3bn, from $3.2bn as reported in the first three months of 2014.
But investors shouldn’t give up on BP. One poor quarter is not a reason to ignore the company.
Instead, those investors looking to buy into BP should wait until after the company’s results are released, as they might get a better price.
Without a doubt, BP is one of the better oil majors out there. While the company has been held back over the past few years by costs stemming from the Gulf of Mexico disaster, BP has been busy restructuring itself to become a smaller, more nimble operation.
And the company’s quest to streamline its operations shows no sign of slowing down.
This month BP has agreed to sell its stake in one of Europe’s biggest gas pipelines to Antin Infrastructure Partners for £324m. Additionally, the group is currently seeking buyers for up to $2bn worth of its US pipelines and storage terminals. These two sales are part of BP’s $10bn 2014-2015 disposal programme.
What’s more, BP has acted quickly in response to the falling oil price, slashing its capital spending budget by 13% for this year. A $1bn restructuring plan has also been announced, which will include thousands of lay-offs and a company-wide pay freeze.
This quick response to the falling oil price has helped BP to win the praise of many City analysts. In fact, as a result of these actions City analysts believe that BP’s profit margins will improve to be some of the best in the oil & gas sector.
BP has many attractive qualities and the company’s valuation, on a per barrel of reserves basis, is one of the lowest around. These qualities make the company a perfect acquisition target. Unfortunately, the government announced this morning that it will look to block any attempted takeover of BP.
Nonetheless, as a standalone entity, BP is still a great investment. Earnings per share are set to fall to 22.3p this year, which means that the company is trading at a forward P/E of 20.8. BP’s dividend payout is expected to be maintained at 26.7p per share for a dividend yield of 5.6%.
Of course, BP’s projected earnings are subject to change, especially if the price of oil falls further or starts to push higher. But for the time being the company’s dividend payout is safe. Management has stated its commitment to maintaining the dividend payout at present levels.
Slow and steady
So overall, the buy case for BP remains intact, although it might pay to wait until after the company releases its first quarter results before buying.
Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.