Will BP Stock Shake Off Oil Spill Concerns?

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 is facing bad news in its efforts to stop more people and businesses from filing claims against it related to the 2010 Deepwater Horizon spill in the Gulf of Mexico. The deadline for compensation claims was set for April 2014 but is likely to be pushed back into 2015. Claims reached $9.6 billion at the end of June and are expected to continue rising.

T = Technicals on the Stock Chart Are Mixed

BP stock has struggled in recent years as it continues to recover from an oil spill a few years back. The stock is now trading near mid-prices for the year and it may need time at these prices. 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 key averages, which signals 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

18.40%

50%

47%

What does this mean? This means that investors or traders are buying a 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

Flat

Average

November Options

Flat

Average

As of Friday, there is average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a significant amount of call and put option contracts and are leaning neutral to bullish 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 apst four quarters. From these numbers, the markets have been optimistic about BP’s recent earnings announcements.

P = Avearge 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 (

target=”_blank”>NYSE:RDSA

) — and sector?

BP

Chevron

Exxon Mobil

Royal Dutch Shell

Sector

Year-to-Date Return

0.86%

15.22%

2.54%

-4.95%

1.93%

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 has made headlines lately, with its most recent item involving pushing back the claims window for the 2010 Deepwater Horizon spill. The stock continues to recover from the incident and is currently trading near yearly mid-prices. Over the last four quarters, earnings have been rising while revenues have been mixed. However, investors in the company have been optimistic. Relative to its peers and sector, BP has been an average year-to-date performer. WAIT AND SEE what BP does this coming quarter.

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