Editor's Note: This analysis was originally published as a stock note by Morningstar Equity Research.
Key Morningstar Metrics for BP
- Fair Value Estimate: GBX 511
- Morningstar Rating: ★★★★
- Morningstar Economic Moat Rating: None
- Morningstar Uncertainty Rating: High
What We Thought of BP’s Earnings
First-quarter 2025 earnings fell short of market expectations while debt levels increased from end-2024. The announced repurchase rate of $750 million for the quarter was at the bottom of the previous guidance range. Management reiterated confidence in its strategic reset, announced in February.
Why it matters: Although BP made the right decision to alter its strategy, the market has not responded, and shares continue to underperform peers. Although it is too early to judge, the quarter will likely keep pressure on BP management and shares.
- Relatively high debt levels were already a concern before increasing during the quarter. They leave BP more exposed than its peers, as the market may face economic weakness that could further weaken oil prices.
- However, asset sale proceeds are now expected to be $3 billion-$4 billion during the year, which should help reduce net debt by year-end, assuming oil prices hold. Also, 2025 capital expenditure will be slightly lower than previously guided.
The bottom line: Our GBX 511 fair value estimate and no moat rating are unchanged, leaving shares trading at a wide discount after shares sold off following tariff announcements early in the month.
- BP’s strategic reset may have come too late. In contrast to Shell, which did so two years ago and then had a period of strong prices, BP now faces falling prices. Its 2025 plan was built on a $71.5/barrel price assumption, well above current levels.
- Shares look cheap, but have for some time. Peers with stronger balance sheets who can maintain payouts in a down cycle are more attractive, even with less of a discount. BP keeping repurchases at the bottom end of the range, after cutting payouts in February, demonstrates its vulnerability.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.