Can BP Close In The Green This Year?

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With shares of BP (NYSE:BP) trading around $41, 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 company provides its customers with fuel for transportation, energy for heat and light, lubricants, and the petrochemicals products used to make everyday items as diverse as paints, clothes, and packaging. It operates in two business segments: Exploration and Production as well as Refining and Marketing. BP provides essential energy products to consumer 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 is facing some bad news in its efforts to stop allowing more people and businesses to file claims against the company related to the 2010 Deepwater Horizon spill in the Gulf of Mexico. The deadline for compensation claims was set at April 2014 but is likely to be pushed back into 2015. Claims reached $9.6 billion at the end of June and are expected to continue rising.

T = Technicals on the Stock Chart are Weak

BP stock has been range-bound over the last several months. The stock is now trading near the lower-end of its range so it may see a slight bounce from current levels. 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 slightly below its key averages which signal neutral to bearish 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

16.13%

3%

0%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

September Options

Steep

Average

October Options

Steep

Average

As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bearish over the next two months.

On the next page, let’s take a look at the earnings, revenue growth rates, and the conclusion.

E = Earnings Are Mixed 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 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

233.67%

192.30%

-78.97%

8.03%

Revenue Growth (Y-O-Y)

-0.74%

10.06%

7.51%

-4.72%

Earnings Reaction

-3.20%

2.28%

1.35%

2.78%

BP has seen increasing earnings and mixed revenue figures over the last four quarters. From these numbers, the markets have mostly been pleased with BP’s recent earnings announcements.

P = Average Relative Performance Versus Peers and Sector

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

BP

Chevron

Exxon Mobil

Royal Dutch Shell

Sector

Year-to-Date Return

-0.41%

10.18%

1.01%

-6.69%

1.92%

BP has been an average relative performer, year-to-date.

Conclusion

BP is an oil and gas company that supplies energy products and services worldwide. The company has made many headlines lately with its most recent involving pushing back the claims window for the 2010 Deepwater Horizon spill incident. The stock has been range-bound over the recent year and is now bouncing off the lower-end of its range. Over the last four quarters, earnings have been increasing while revenues have been mixed which has mostly pleased investors in the company. Relative to its peers and sector, BP has been an average year-to-date performer. WAIT AND SEE what BP does this coming quarter.

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