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He PA (LSE:BP) share price has fallen sharply in 2024, reflecting lower demand for hydrocarbon products and reports of a potential glut in the oil market. However, this could be an opportunity for eagle-eyed investors. This is because, according to analysts, BP's share price could be undervalued by 30%.
The consensus of 18 analysts covering the stock is Outperform, suggesting it will be one of the best performing companies in the sector. The oil company's average target price is 492 pence.
What is behind optimism?
Well, analysts have a variety of reasons to believe that BP stock will trade higher.
USB He said BP shares are trading close to the replacement cost of supplies, which he considers too punitive. Analysts set a price target of 525p, suggesting significant upside, and noted that the share price should rise unless the company fails to cut costs and therefore has to reduce its share buyback program.
Cost cutting is a central feature for analysts with bullish views on BP. The British hydrocarbon giant has a much higher debt load than its peers and trades at a significant discount to US oil companies, partly due to relative inefficiencies and return on capital.
Of course, oil prices are critical to company performance. american bank Morgan Stanley predicts Brent crude will average $70 a barrel (slightly below the current price) in the second half of 2025, which could support BP's valuation.
There is a warning
However, at this point, it's worth noting that there is an important caveat. Brokerages and analysts have been largely lowering their price targets, while maintaining their broad outlook on the stock.
This reflects less bullish sentiment on oil, driven by concerns about global demand fluctuations, oversupply risks and shifts toward renewable energy. While geopolitical tensions and supply disruptions may lead to temporary spikes, the long-term outlook remains somewhat uncertain.
Investors should closely monitor these trends, as well as OPEC+ decisions and technological advances in alternative energy sources. Donald Trump also has to enter the equation. He has promised to keep energy prices low during his presidency.
BP profit forecast
With hydrocarbon companies, it can be really difficult to make your own forecasts. Simply because the entire premise of your forecast can be undermined by changes in oil and natural gas prices. So let's take a look at what the analyst consensus shows.
BP's profits are not expected to be particularly strong this year. The stock currently trades at 6.9 times 2023 earnings, but 18 times forward earnings for 2024. The forecast then suggests earnings will rebound, with the price-to-earnings (P/E) ratio falling to 7.3 times in 2025 and 6.4 times in 2026. .
However, the dividend forecast is more consistent with the yield expanding from 6.5% in 2024 to 7.3% in 2026, according to forecasts.
Personally, I follow BP very closely. This could be a great opportunity to buy shares if the forecasts are to be believed. But things can change quickly in the hydrocarbon sector and that worries me.
