BP Trades above the Peer Average


Nov. 20 2020, Updated 5:26 p.m. ET

BP’s valuations

In the previous part, we discussed BP’s (BP) short interest trend. In this part, we’ll discuss BP’s forward valuations compared to its peers.

Currently, BP trades at a forward PE ratio of 10.7x, which is above its peer average of 10.6x. ExxonMobil (XOM), Chevron (CVX), PetroChina (PTR), and YPF (YPF) also trade above the average PE ratio at 14.0x, 13.1x, 12.4x, and 13.7x, respectively. In contrast, Royal Dutch Shell (RDS.A), Total (TOT), and Suncor Energy (SU) trade below the average PE ratio at 9.4x, 9.6x, and 10.5x, respectively.

BP trades at a forward EV-to-EBITDA multiple of 4.3x, which is above the peer average of 4.2x.

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Why does BP trade above the peer average?

BP stock has fallen 18% in the fourth quarter. Despite the fall, BP stock trades above the peer average on both valuation matrices.

BP’s financials like earnings, debt, and cash flows have improved in its latest earnings. BP’s net debt-to-EBITDA ratio declined and fell below the industry average in the third quarter. BP’s cash flow from operations has risen YoY (year-over-year) in the first nine months of 2018. However, the cash flow from operations is still short of covering the capex and dividends for the period. BP has seen a YoY decline in the shortfall percentage. In the first nine months of 2017, BP had a cash flow shortfall of 30%, which reduced to 2% in 2018. The reduction hints at a recuperating cash flow environment for the company.

Going forward, BP has a strong pipeline of upstream projects that’s expected to result in growth in the company’s hydrocarbon production. BP’s financials could strengthen more with higher earnings and cash flows and its improved debt and liquidity position. Despite the slump in the fourth quarter, BP stock is above the peer average.


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