Three Things to Love About BP plc (ADR) (BP)

LONDON — There are things to love and loathe about most companies. Today, I’m going to tell you about three things to love about BP plc (ADR) (NYSE:BP).

I’ll also be asking whether these positive factors make the FTSE 100 oil supermajor a good investment today.

BP plc (ADR) (NYSE:BP)

Uncertainty can mean potential opportunity for investors. And uncertainty continues to surround BP plc (ADR) (NYSE:BP) more than three years after its Gulf of Mexico oil spill. While the company has already settled a lot of claims against it, there are more to come and the final cost is as yet unknown. BP plc (ADR) (NYSE:BP) says it is simply not possible to come up with “a reliable estimate” at this stage.

Another uncertainty hanging over the company — and other big oil groups, including Shell and Statoil ASA(ADR) (NYSE:STO) — is an investigation into allegations that firms colluded in fixing oil prices. Again, there is the possibility of BP plc (ADR) (NYSE:BP)taking a damaging financial hit.

At a recent share price of 446 pence — over 200 pence below the level before the oil spill — the current uncertainty makes BP plc (ADR) (NYSE:BP) an investment opportunity with a high risk but, potentially, a high reward.

There’s been a big shift in the nature of BP plc (ADR) (NYSE:BP)’s interests in Russia. TNK-BP, a venture with Russian oligarchs, was financially successful, but relations between the partners were fragile. However, BP recently disposed of its 50% share of TNK-BP — valued at $55 billion — ending up with a 20% stake in state-owned oil firm Rosneft and about $12 billion in cash.

The deal was sealed at the mansion of Russian president Vladimir Putin with whom the boss of Rosneft is on excellent terms. BP’s interest in what is the largest listed oil company in the world puts its exposure to the exciting Russian oil industry on a somewhat more solid footing — even if there remain risks of unfavorable changes in the political winds.

Earnings and dividend
It’s arguable that BP’s risks are more than priced in. At 446 pence, investors are paying just a bit over eight times current-year forecast earnings, falling to just a bit over seven times earnings for 2014.

As well as the low price-to-earnings (P/E) ratios, analysts are forecasting strong earnings growth of 40% this year and 12% next. That translates into attractive PEG (P/E-to-earnings growth) ratios of 0.2 and 0.6, respectively. A PEG of less than one is generally considered to be good value.

Similarly, the dividend is appealing: the prospective yield is 5.3%. Furthermore, the dividend has been growing strongly since being reinstated at a lower level after the Gulf of Mexico disaster, and analysts reckon the growth is set to continue: an 8% increase this year and 6% next.

A good investment?
For investors willing to take a higher risk for a potentially higher return, BP’s valuation makes it an interesting proposition. Shell has similar P/E and yield ratings, but BP’s forecast earnings and dividend growth are much superior.

The article 3 Things to Love About BP originally appeared on and is written by G.A. Chester.

G.A. Chester has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

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