Will a Recent Victory Be Positive for BP?

With shares of BP (NYSE:BP) trading around $42, is BP an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework.

T = Trends for a Stock’s Movement

BP is an integrated oil and gas company. The firm provides its customers with fuel for transportation, energy for heat and light, lubricants, and the petrochemicals products used to make items like paints, clothes, and packaging. It operates in two business segments: exploration and production, and refining and marketing. BP provides energy products to consumers and companies worldwide. Without the oil and gas products provided, many consumers and businesses would not be able to operate on a daily basis.

BP had a recent victory in court as the Fifth U.S. Circuit Court of Appeals in New Orleans decided on Wednesday that the claims administrator for the government, Patrick Juneau, needs to be more discriminating about claims related to BP’s 2010 Deepwater Horizon oil spill, Reuters reports. The court also ruled to stop payments on claims that don’t meet the new, stricter standards. After the spill, BP agreed to be responsible for economic losses but has complained that it’s been forced to pay claims for people and businesses that were not harmed by the disaster.

T = Technicals on the Stock Chart Are Mixed

BP stock has struggled to make significant progress in recent years. The stock is currently trading near mid-prices for the year and it may need to spend time here before moving. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, BP is trading between its tangled key averages, whichs signal neutral price action in the near term.

BP

Source: Thinkorswim

Taking a look at the implied volatility and implied volatility skew levels of BP options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

BP Options

21.16%

90%

89%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

October Options

Steep

Average

November Options

Steep

Average

As of Thursday, there is average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bearish over the next two months.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on BP’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for BP look like and, more importantly, how did the markets like these numbers?

2013 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

233.67%

192.30%

-78.97%

8.03%

Revenue Growth (Y-O-Y)

-0.74%

10.06%

7.51%

-4.72%

Earnings Reaction

-3.20%

2.28%

1.35%

2.78%

BP has seen increasing earnings and mixed revenue figures over the last four quarters. From these numbers, the markets have mostly been pleased with BP’s recent earnings announcements.

P = Average Relative Performance Versus Peers and Sector

How has BP stock done relative to its peers – Chevron (NYSE:CVX), Exxon Mobil (NYSE:XOM), and Royal Dutch Shell (NYSE:RDSA) — and sector

BP

Chevron

Exxon Mobil

Royal Dutch Shell

Sector

Year-to-Date Return

1.80%

9.33%

-1.34%

-4.97%

0.94%

BP has been an average relative performer, year-to-date.

Conclusion

BP is an oil and gas company that supplies energy products and services worldwide. The company saw a victory at the Fifth U.S. Circuit Court of Appeals in New Orleans on Wednesday, which may be a positive catalyst for the company. The stock has not seen much progress in recent years and is now trading near mid-prices for the year. Over the last four quarters, earnings have been rising while revenues have been mixed, which has left investors mostly pleased about earnings announcements. Relative to its peers and sector, BP has been an average year-to-date performer. WAIT AND SEE what BP does this quarter.

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