Should You Buy BP plc (ADR) (BP)?

BP To Pay Massive Fine, More To ComeLONDON — The bad press surrounding BP plc (ADR) (LSE:BP) (NYSE:BP) and its role in the 2010 Gulf of Mexico oil spill continues to hamper interest in the natural resources goliath. The trial to decide the final settlement commenced in late February and is expected to extend for a protracted period.

In the meantime, I believe that accelerating production across BP plc (ADR) (LSE:BP) (NYSE:BP)’s streamlined portfolio of assets should underpin future growth. Indeed, the boffins at Bank of America lifted their share-price target to 540 pence following February’s encouraging full-year results, a 22% premium from current levels.

Groupwide operations ready to march higher
Last month’s results for 2012 showed profits more than halve to $11.6 billion as BP plc (ADR) (LSE:BP) (NYSE:BP) heavily divested assets to cover the cost of the Deepwater Horizon oil catastrophe.

BP plc (ADR) (LSE:BP) (NYSE:BP) estimates that it will have to fork over around $42 billion for its role in the accident. Since 2010, the company has divested assets — excluding the sale of its stake in TNK-BP — to the tune of $38 billion to cover these expenses.

BP plc (ADR) (LSE:BP) (NYSE:BP)’s upstream production was flat during 2012, as the effect of the asset sales, coupled with falling reserves, curtailed output.

However, production is expected to move convincingly higher from this year onwards as output jumps at the firm’s new projects and maintenance closures slow at its other ventures. BP brought five major oil projects online in 2012, and plans to start production at another four this year and a further six in 2014.

Also, BP plc (ADR) (LSE:BP) (NYSE:BP) reported that momentum within its downstream businesses continues to tick higher — these subsidiaries punched record earnings last year as well as a fourth successive year of underlying profit growth.

Earnings expected to climb higher
Analysts expect earnings per share to advance 7% to 61 pence in 2013 before accelerating 10% higher the following year to 67 pence. Yet these excellent earnings projections are not factored into the current share price, in my opinion.

Forecast P/E ratings of 7.3 and 6.6 for 2013 and 2014 offer great value for money, a point which is rammed home by a budget price/earnings to growth (PEG) readout. The City’s number crunchers expect this to come in at 1 this year and 0.7 in 2014 — any figure around or below 1 is considered outstanding value.