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Here's Why You Should Retain BP Stock in Your Portfolio

Zacks Equity Research

BP plc BP has been ramping up oil equivalent production volumes, backed by its strong portfolio of upstream energy projects. This has not only brightened the outlook of the British energy giant’s exploration and production business but has also supported the company’s impressive earnings surprise history.

The integrated energy player beat the Zacks Consensus Estimate for earnings in all of the prior four quarters, the average surprise being 16.8%. Moreover, we expect BP to see earnings growth of 9.5% in the next five years versus the industry’s 6.7%.

Let’s delve deeper to find out why this Zacks Rank #3 (Hold) stock is worth retaining in your portfolio at the moment.

Factors Aiding the Stock

Since 2016, the company has brought 23 major upstream projects online that will help it achieve its target of producing an additional 900 thousand barrels of oil equivalent per day volumes by 2021. In fact, production volumes from the projects have been fetching the company with significant cashflow.

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Apart from the projects that have already been placed online, the company is planning to start up several projects beyond 2020, improving the production outlook.

Moreover, over the past five years, the company has been consistently paying higher dividend yields than the industry it belongs to. In order to return capital to shareholders, the company has been repurchasing shares. In the first nine months of 2019, the company spent $340 million to buy back 52 million ordinary shares.

Notably, the energy major plans to boost capital spending on renewable power business as most oil companies in Europe have decided to combat climate change by reducing greenhouse gas and carbon emissions and focusing on clean energy.

BP added that although renewable power business generates relatively lower returns than oil and natural gas operations, alternative energy is not exposed to the volatility in commodity prices. In fact, companies can generate stable returns from renewable power, BP revealed.

Possible Headwinds

The company expects turnaround activities to continue to hurt earnings from downstream business in the December quarter of 2019. BP also expects industry refining margin to be seasonally lower in the fourth quarter compared to the third.

Moreover, the company’s balance sheet has significantly more exposure to debt as compared to other stocks belonging to the same industry. This is primarily because of BP’s acquisition of shale resources in the United States last year from BHP Billiton for $10.5 billion.

Stocks to Consider

Better-ranked players in the energy space are Murphy USA Inc MUSA, California Resources Corporation CRC and CNX Resources Corporation CNX. While Murphy USA sports a Zacks Rank #1 (Strong Buy), California Resources and CNX Resources carry a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Murphy USA’s earnings beat the Zacks Consensus Estimate in three of the prior four quarters.

California Resources’ earnings beat the Zacks Consensus Estimate in three of the past four quarters.

CNX Resources’ earnings surpassed the Zacks Consensus Estimate in two of the prior four quarters. It has a positive earnings surprise of 34.8%, on average, for the trailing four quarters.

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CNX Resources Corporation. (CNX) : Free Stock Analysis Report
 
Murphy USA Inc. (MUSA) : Free Stock Analysis Report
 
BP p.l.c. (BP) : Free Stock Analysis Report
 
California Resources Corporation (CRC) : Free Stock Analysis Report
 
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Zacks Investment Research