Exxon Mobil Corporation (XOM): Is BP plc (ADR) (BP) a Buy After the $8 Billion Buyback Announcement?

Page 1 of 2

BP plc (ADR) (NYSE:BP)’s shareholders should get excited again, as the company intends to return around $8 billion in cash to its shareholders in the next 12-18 months in a form of share buybacks. The share repurchase announcement was made after it had traded its 50% stake in its Russian business TNK-BP to Rosneft for $12.5 billion in cash and a 18.5% stake in Rosneft. In the past twelve months, BP has lost more than 9.2% of its total market value to land at around $42 per share. Is BP a buy after the deal with Rosneft and the stock repurchase plan? Let’s find out.

BP To Pay Massive Fine, More To Come

Sluggish share performance since Gulf of Mexico crisis

BP plc (ADR) (NYSE:BP)’s share price has been sluggish since the oil spill crisis in the Gulf of Mexico. In April 2010, BP’s stock dropped significantly from nearly $60 per share to only $27 per share, and it has stayed in the range of $37 – $44 since the beginning of 2011. BP has estimated that it would take around $40 billion to clean up the mess in the Gulf. According to BP plc (ADR) (NYSE:BP), it has paid out $10.43 billion in claims to individuals, businesses and the government. I think BP could meet the claims quite comfortably, as it kept generating consistent positive cash flow. In 2010, its operating cash flow was pushed down to the lowest level at $13.6 billion. In 2012, BP’s operating cash flow was around $20.4 billion.

The TNK-BP deal would give BP a lot of financial flexibility

Shareholders of the British oil giant should be happy after BP plc (ADR) (NYSE:BP) completes its major restructure in its Russian oil business with Rosneft. After the deal, BP will receive around $12.5 billion in cash, including about $710 million in dividends from TNK-BP, and an 18.5% stake in Rosneft. Thus, combined with the existing 1.25% stake, BP would own a 19.75% interest in Rosneft. According to the company’s recent press release on March 22, the $8 billion share repurchase is equivalent to the total investment outlay that BP invested in TNK-BP in 2003.

Highest dividend yield

In the end of 2012, BP had the total proved reserves of 17 billion BOE, while Exxon Mobil Corporation (NYSE:XOM)’s proved reserves were around 25.2 billion BOE. Chevron Corporation (NYSE:CVX) had the smallest proved reserves among the three, at around 11.35 billion BOE.

At $42 per share, BP is worth around $133.8 billion. The market values BP at only 5.74 times EV/EBITDA. However, BP has the most expensive valuation among the three. Chevron is trading around $120 per share, with a total market cap of $233.4 billion. It is valued even cheaper than BP on the market, at only 4.66 times EV/EBITDA. Exxon Mobil Corporation (NYSE:XOM) is the largest oil company among the three, with $398.8 billion in total market cap. At $89 per share, it is valued at 5.48 times EV/EBITDA.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

Top 10 Jobs for 2014 by Salary Gain (Predictions)

Top 5 Digital Trends for 2014

Top 6 Things You Can Do To Increase Your Productivity

Top 9 Trending Smartphones in 2013

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!