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BP’s Outlook: What Do Its Financials Suggest?

PART:
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
Part 12
BP’s Outlook: What Do Its Financials Suggest? PART 12 OF 17

How BP’s PEG Ratio Compares to Its Peers

BP’s PEG ratio

In the previous article, we looked at BP’s (BP) short interest, which reflected a decrease since the end of May. In this part, we will switch to valuation analysis of BP stock and begin with PEG ratio. In the next article, we’ll also look at BP’s forward valuations in comparison to its peers.

PEG ratio stands for a price-to-earnings-to-growth ratio. The ratio examines a stock’s valuation after factoring in its expected future growth rate. We took into consideration BP’s (BP) mean estimate of its PEG ratio. The mean estimate is derived by considering BP’s mean price-to-earnings and its mean blended earnings growth rate. A PEG ratio that less than 1.0 typically signifies an undervalued stock.

How BP’s PEG Ratio Compares to Its Peers

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BP’s PEG ratio stands at 0.36, below the peer average of 0.39. The peer average considers the average PEG ratio of 11 global integrated energy companies.

BP’s growth plans

The PEG ratio considers not only a company’s growth rate in earnings for the next two years but also its long-term growth rate. BP intends to grow its earnings via its robust Upstream and Downstream segments.

In its Upstream segment, BP has kickstarted six major projects—West Nile Delta, Quad 204, Trinidad Onshore Compression, Persephone, Juniper, and Khazzan Phase 1—in 2017. Plus, the Zohr project in Egypt is expected to commence in December. These projects are expected to add to BP’s total hydrocarbon production.

BP’s organic capex for 1H17 stood at $7.9 billion. In 1H17, BP incurred 86% capex in its Upstream segment, 12% in its Downstream segment, and 2% in its Other Businesses segment. BP has large proved reserves of 17.8 billion barrels of oil equivalent, which is expected to enhance its hydrocarbon production in the long term.

Peers’ PEG ratios

BP’s peers PetroChina (PTR), YPF (YPF), Petrobras (PBR), and Suncor Energy (SU) are trading below their peer averages with PEG ratios of 0.30, 0.26, 0.30, and 0.02, respectively. ExxonMobil (XOM), Royal Dutch Shell (RDS.A), and Total (TOT) are trading above the peer average with PEG ratios of ~1.0, 0.41, and ~1.3, respectively. 

Typically, the higher the PEG ratio, the more expensive is the stock after considering future growth. Among the global integrated energy companies, Total has the largest PEG ratio while Suncor Energy has the smallest PEG ratio.

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