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Have BP's Shares Been Oversold?

It could very well turn out that BP's shares have been oversold, says Morningstar oil analyst Stephen Simko

Stephen Simko, CFA 6 October, 2011 | 2:16PM

BP (BP.) has suffered some serious setbacks, and the company's reputation has been damaged. There is of course justification for this: the financial costs of the Macondo oil spill have destroyed a lot of shareholder value, and the oil spill could even prevent the company from receiving new drilling licences in the Gulf. Further, the collapse of its strategic agreement with Rosneft at the hands of its TNK-BP partners created further embarrassment. This deal's failure highlights both the risks of its Russian joint venture (which makes up more than a quarter of the company's total production) as well as the unique challenges BP faces in growing its production and reserves. Despite these major issues, BP's underlying business remains sound and the company still generates significant cash flow. If the company's production outlook improves and Macondo costs prove to be less than expected, it could very well turn out that its shares have been oversold. Further, additional asset sales, specifically its large North American refineries, could also prove to be near-term share catalysts.

Read the full Morningstar Research Report on BP, including our fair value estimate, by clicking here. Morningstar Research on Stocks, Funds and ETFs is available to Morningstar.co.uk Premium subscribers.

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Securities Mentioned in Article
Security NamePriceChange (%)Morningstar
Rating
BP PLC482.05 GBX0.74
About Author

Stephen Simko, CFA  is a senior stock analyst at Morningstar.