Shares in BP, the U.K. oil giant, have fallen nearly 17% on the London Stock Exchange since their 2023 peak in February, a loss that might now be looking overcooked, according to analysts at RBC Capital Markets.
Compared with its U.S. peers ConocoPhillips (NYSE: COP), down 2.1% year-to-date and Exxon Mobil (NYSE: XOM), down 5.2% in 2023, BP has had a rough time. BP's NYSE-listed American Depository Receipts (NYSE: BP) have fared marginally better, but are still down 13.5% to $35.80, from a 2023 peak of $41.38.
So what's eating BP's share price performance and are the losses likely to end soon? Biraj Borkhataria, associate director of European research at RBC, said the current share price was undervalued, and raised RBC's price target from 550p to 625p ($6.93 to $7.88) and reiterated an Outperform rating.
Looking at BP's price chart over the year, its shares have peaked and troughed several times. Disappointing quarterly results, the loss of CEO Bernard Looney and, of course, falling oil prices, have all contributed to some huge volatility in the shares this year.
"Since announcing a market pleasing strategy update earlier in the year, BP's share price has lagged peers following two disappointing sets of results and the departure of its CEO," Borkhataria said.
More Clarity On Leadership Needed
He added: "The disappointing earnings do little to give investors confidence in BP's punchy 2025 and 2030 earnings targets, and lack of clarity on the management update has also weighed on shares, in our view."
Murray Auchincloss has remained as interim CEO since Looney's departure in September and, although many expect him to be confirmed in the role in the coming months, BP are reportedly also looking at external hires.
"This could add more uncertainty to the overall strategy, while also raising questions on board competence. We see the confirmation as important symbolically to show a steady ship," Borkhataria said.
Key Reasons To Be Positive
RBC listed three reasons why it had reiterated an Outperform rating and raised its target price.
- BP intends to return at least 60% of its surplus free cash flow to shareholders via buybacks over time in addition to its dividend, and we expect to see surplus cash generation improve.
- One of BP's key differentiators is its trading division, with the company generating significant profits in 2022
- BP is undertaking a significant restructuring program and lower costs could help increase its earnings power
Oil majors' shares have largely underperformed this year given the backdrop of falling oil prices, and slowing demand. One company not mentioned so far is Chevron (NYSE: CVX), which has fared even worse than BP. Chevron shares have fallen 19.3% year-to-date.
Chevron announced last month a $53 billion deal to buy oil exploration and production company Hess, which exposes the shares more closely to the price of oil. Since that announcement, the shares have fallen 15.9%.
With their sharp price falls, both BP and Chevron could now be at attractive valuations to take advantage of dividend yields currently standing at 5% and 4.2% respectively.