Linked here is a detailed quantitative analysis of BP Plc (NYSE:BP). Below are some highlights from the above linked analysis:Company Description: This supermajor integrated oil company (formerly BP Amoco p.l.c.) is based in London and is the world's second largest publicly owned oil company and the fourth largest U.S. refiner.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
- Avg. High Yield Price
- 20-Year DCF Price
- Avg. P/E Price
- Graham Number
Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description:
- Rolling 4-yr Div. > 15%
- Dividend Growth Rate
- Years of Div. Growth
- 1-Yr. > 5-Yr Growth
- Payout 15% of avg.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
- NPV MMA Diff.
- Years to >MMA
Other: BP is a member of the International Dividend Achievers™ Index. Some analysts believe that BP's crude oil production will decline over the next two years. That along with with projected lower prices, refining restructuring project and the impact of new management will likely take its toll on near-term earnings. However, new projects coming on-stream in 2009 should allow the company to maintain production at 4 million barrels of crude oil per day. Risks include the standard operational and geopolitical risks, unsuccessful replacement of reserves and a continuation of crude oil prices falling.
Conclusion: BP earned one Star in the Fair Value section, earned one Star in the Dividend Analytical Data section and earned two Stars in the Dividend Income vs. MMA section for a net total of four Stars. This quantitatively ranks BP as a 4 Star-Buy.
Using my D4L-PreScreen.xls model, I determined the share price could increase to $91.03 before BP's NPV MMA Differential fell to the $10,000 that I like to see. At that price the stock would yield 3.63%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the needed $10,000 NPV MMA Differential, the calculated rate is -0.96%. This dividend growth rate is substantially below the 9.1% used in this analysis, thus providing a margin of safety.
BP has a risk rating of 2.25 which classifies it as a medium risk stock. In October 2008, BP said it will maintain its current dividend this year [2008] and anticipates growing it, deciding to distribute more money to shareholders via dividends than buybacks. BP's CEO indicated that the company's robust financial position should allow it to do this even if crude oil prices decline further, and despite the market turmoil.
As noted above, I anticipate 2009 and 2010 will bring earnings challenges to BP, but long-term BP's reserves offer substantial upside for the patient investor. BP is trading well below my calculated buy price of $88.44. I will continue to add share as its price and my allocation allows. For additional information, including BP's dividend history, please refer to its data page.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I was long in BP (2.8% of my Income Portfolio) .
What are your thoughts on BP?
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