Fourth-quarter earnings fell short of market expectations, but debt levels fell from the third quarter and BP kept its quarterly repurchase rate constant at $1.75 billion.
Management announced plans to “fundamentally reset” their strategy at the upcoming capital markets day.
What We Thought of BP’s Earnings
BP’s integrated energy company transition strategy has resulted in underperformance relative to more hydrocarbon-focused peers.
The news of a strategic reset and the involvement of an activist investor should come as good news for shareholders frustrated with the lagging shares.
What exactly the reset entails is unclear, but BP has set a high bar for its Feb. 26 update. A retrenchment of its low-carbon investment, greater cost reductions, and more focus on, or growth of, the hydrocarbon business would be well received.
Although it kept the repurchase rate constant, BP reiterated it would update its financial guidance, suggesting it could reduce its payouts, but might also reduce capital spending while bringing down debt.
Read more: Activist Builds Stake in BP
BP Stock vs. Morningstar Fair Value Estimate
Source: Morningstar Direct.
Our GBX 490 fair value estimate and no moat rating are unchanged, leaving shares trading at only a slight discount after shares rallied earlier this week on the reported purchase by activist investor Elliot Management.
We will update our fair value estimate and model after the capital markets day. A reduction in spending, particularly in low carbon, as well as greater planned cost cuts, would likely result in a higher fair value estimate.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
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