A Forward Valuation Comparison of BP’s Competitors

Earlier, we discussed why BP (BP) is trading higher than its historical valuations. In this article, we’ll consider BP’s forward valuations compared to its competitors’.

Before we proceed with our peer comparison, let’s consider the market caps (capitalizations) of integrated energy companies. BP’s market cap stands at ~$100 billion. Among the company’s peers, ExxonMobil (XOM) has the highest market cap of ~$371 billion.

Chevron (CVX), Total S.A. (TOT), and Royal Dutch Shell (RDS.A) have market caps of ~$190 billion, ~$121 billion, and ~$204 billion, respectively. If you’re looking for exposure to XOM and CVX, you can consider the iShares Russell 1000 Value ETF (IWD), which has ~14% exposure to energy sector stocks.

BP is now trading at a two-year forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 4.9x, below its peer average of 5.8x. BP’s peers Royal Dutch Shell (RDS.A), Eni (E), and YPF (YPF) are also trading below the peer average.

BP could be trading at a discount to peers such as XOM and CVX due to the fact that they are better placed in terms of capital structure. BP’s total debt-to-capital ratio stands at 35% compared to XOM and CVX’s average of 19%.

For the past few years, BP has been struggling with Gulf of Mexico oil spill charges, which have reached $56 billion to date. Plus, lower oil prices have impacted BP’s leverage and cash position. These issues are likely weighing on the stock compared to XOM and CVX.

In next and final part of our series, we’ll discuss the correlation between BP’s stock and crude oil prices.