Is BP a Buy?

With shares of BP (NYSE:BP) trading around $49, 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 plans to create a separate, more competitive business to manage its onshore oil and gas assets, including its shale operations, in the 48 contiguous U.S. states. BP, which will own the new business, currently oversees the region through its North America Gas group based in Houston. BP said Tuesday that the business will be based at a new location in Houston that’s separate from its Westlake campus. The business will also have a separate management team. BP, which is still contending with repercussions from the Deepwater Horizon spill in the Gulf of Mexico, plans to start reporting separate financial results for the new business in 2015. It does not include offshore operations.

T = Technicals on the Stock Chart Are Mixed

BP stock has not made significant progress in recent years. The stock is currently pulling back 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 above its rising key averages which signal neutral to bullish 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

17.95%

53%

50%

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

April Options

Flat

Average

May Options

Flat

Average

As of today, there is an 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.

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%

192.30%

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 had mixed feelings about BP’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

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

BP

Chevron

Exxon Mobil

Royal Dutch Shell

Sector

Year-to-Date Return

1.19%

-7.40%

-4.87%

2.64%

-1.26%

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. The company plans to create a separate, more competitive business to manage its onshore oil and gas assets. The stock has not made significant progress in recent years and is currently pulling back. Over the last four quarters, earnings and revenues have been decreasing, which has left investors with mixed feelings 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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