Is BP Stock a Good Investment?

BP shares have risen on the back of a strong operating performance in the second quarter of 2023, but can this momentum last as the group transitions to renewable energy?

PA (LSE:BP) shares have been on an exciting bullish journey for quite some time now. Since the stock hit a low of 196.6p in October 2021, the stock has risen continuously to date.

This upward trajectory is not surprising given the direction of oil and, in turn, energy prices. As such, shares of the oil and gas giant are up a whopping 154% year to date. As this bullish journey continues, let's delve into the company's operations and the future prospects for BP stock.

Key points

• BP is a global energy company that is transitioning to a net zero company by 2050.
• BP stock is on a prolonged inflation-driven bull run.
• Despite the decline in reported earnings, the company is delivering for shareholders through dividend growth and share buybacks.

What does BP do?

BP is a global energy company that is transitioning to a net-zero company by 2050. By 2030, the company aims to transition from an international oil company to an integrated energy company.¹.

The group has operations in Europe, North and South America, Australasia, Asia and Africa. And they offer energy solutions around the world.

What do the finances look like?

The integrated energy company showed resilient operational and financial performance in the second quarter of its fiscal 2023 that ended in December.

Reported profit for the quarter was $1.8 billion, compared to $8.2 billion in the first quarter of 2023. This reduction is primarily due to lower oil and gas realizations. The company's underlying performance was resilient, with strong cash delivery of $6.3 billion in operating cash flow in the second quarter.

In addition to operational investments, the energy company also offers benefits to its shareholders through dividend growth and share buybacks.

The Bullish Case for BP Share Price

BP shares are trading at around 526p with a market capitalization of £91bn. As mentioned above, the stock has been on a prolonged bullish trend over the past two years. Following this share price trend, BP shares have appreciated close to 10% so far this year.

The oil and gas company's strength is its stable performance during the transition. BP is actively investing to support energy security and energy affordability. They plan to invest up to $8 million in higher cost-effectiveness and convenience bioenergy and electric vehicle charging, while focusing on hydrogen, renewables and energy.

Additionally, the company plans to invest an additional $8 million in its oil and gas segment targeting short-cycle rapid recovery opportunities with lower additional operating emissions.

The Bearish Case for BP Share Price

Without a doubt, the integrated energy company has a very ambitious plan to become a clean energy company by 2030. Will the company be able to execute this transformation plan? Only time will tell, but the progress made so far is, in my opinion, encouraging.

Amid all this, the main factor that worries me, as an investor, is the long-term outlook for BP stock. As the entire world is transitioning to clean energy options, will the main source of income remain?

Given that oil prices are highly volatile and highly unpredictable, will revenues remain stable in the near future? That's where I'm personally skeptical. Therefore, if management fails to move away from this primary source of cash flow, the business could eventually fall apart.

BP Stock Price Prediction

As of September 2023, institutional analysts' predictions for the BP share price vary. The lowest estimate sits at around 495p, suggesting the stock is trading slightly above fair value. However, others are much more optimistic, with expectations reaching as high as 1,010p!

If the latter is accurate, that indicates that investors currently have the opportunity to double their investment in the next 12 months. As exciting as this prospect may seem, predictions are never guaranteed. And, in my experience, making investment decisions based solely on this factor is a recipe for disaster.

Should you buy BP shares today?

The long-term uptrend in BP stock is undoubtedly exciting investors. But I can't help but feel that this momentum will slow considerably in the near future.

The company has benefited significantly from the tailwinds created by inflation at the expense of households. But now that economic conditions are finally starting to stabilize and inflation is cooling, the factor driving stock prices is on track to decline.

BP is likely to remain a critical company in the global economy. But, in my opinion, its long-term potential is ultimately tied to its ability to transition to a completely different business model. And while the progress so far has been encouraging, there is still a long way to go and many unforeseen headaches lurk around the corner.

With that in mind, I will keep this business on my watch list for now, management has made further progress.

Article sources

1. blood pressure, bp Integrated Energy Company Strategy Update

Saima Naveed does not own shares in any of the companies mentioned. The Money Cog has no position in any of the companies mentioned. The opinions expressed about the companies and assets mentioned in this article are those of the author and therefore may differ from the opinions of The Money Cog Premium Services analysts.