Will BP Move Higher After Recent News?

With shares of BP (NYSE:BP) trading around $46, 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.

Analysts deem the Environment Protection Agency settlement an important milestone in BP’s nearly four-year-long mission to recover from the 2010 Deepwater Horizon oil spill. That disaster prompted a five-month drilling moratorium and bolstered safety requirements, which together led to an exodus of rigs and drilling equipment. In fact, production collapsed after the 2010 oil spill. But large oil companies have begun drilling again, and now even BP can bid on new contracts. Last week, BP and the EPA reached an agreement to lift a 2012 ban that was implemented following the spill and prevented the company from drilling in the Gulf of Mexico, where it was once one of the most aggressive oil producers.

The company has since wasted no time in getting involved in bidding. In an auction held Wednesday in New Orleans, just days after the ban was lifted, the oil producer was the highest bidder on 24 exploration blocks in the Gulf of Mexico worth nearly $42 million, according to records from the Department of the Interior.

T = Technicals on the Stock Chart Are Weak

BP stock has not made significant progress in recent years. The stock is currently trading sideways and may need time to stabilize. 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 rising key averages, which signals neutral price action in the near-term.

BP

Source: Thinkorswim

Taking a look at the implied volatility (red) 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

17.42%

43%

40%

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

Put IV Skew

Call IV Skew

April Options

Average

Average

May Options

Average

Average

As of Friday, there is average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a minimal amount of call and put option contracts and are leaning neutral over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Decreasing 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 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)

-48.16%

-33.55%

-233.67%

192.3%

Revenue Growth (Y-O-Y)

-4.92%

-50.71%

-0.74%

10.06%

Earnings Reaction

0.34%

4.98%

-3.20%

2.28%

BP has seen decreasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been optimistic about BP’s recent earnings announcements.

P = Excellent 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

-4.30%

-6.78%

-6.43%

0.27%

-3.31%

BP has been a relative performance leader, year-to-date.

Conclusion

BP is an oil and gas company that supplies energy products and services worldwide. Last week, BP and the EPA reached an agreement to lift a 2012 ban that was implemented following the spill and prevented the company from drilling in the Gulf of Mexico, where it was once one of the most aggressive oil producers. The stock has not made significant progress in recent years and is currently trading sideways. Over the last four quarters, earnings and revenues have been decreasing, which has left investors optimistic about recent earnings announcements. Relative to its weak peers and sector, BP has been a year-to-date performance leader. WAIT AND SEE what BP does this quarter.

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