Fin - Breakout - US

BP Undervalued, Likely to Resume Gulf Drilling: Analyst

Jeff Macke
Breakout

Last April, oil was spewing into the gulf as fast as the stock of BP (BP) was falling to earth. From pre-spill highs over $60 last April 20th, BP fell to about $25 a share in just over two months. Then-BP CEO Tony Hayward was seemingly determined to maximize the damage to the company's reputation, complaining that he just wanted "his life back" before the well was even capped. Investors and -- just as important -- voters were appalled by the apparently cavalier attitude of the company toward the environment.

Fast forward to today, and both BP's stock and the company are much revived. While not near pre-spill highs, BP is sitting over $45 a share, and CEO Bob Dudley, who replaced Hayward last October, has seemingly arrested the PR liability facing the company. We asked Mark Gilman, an analyst with The Benchmark Company, if the changes that have taken place are going to lead to sustainable improvements.

"We're pretty comfortable that things [at BP] are going in the right direction" says Gilman, "and we're even more comfortable that the market hasn't priced it right yet." Beyond the headlines, Gilman feels that BP has shored up the financials and operations enough to at least suggest lasting change. Dudley has installed a safety overseer reporting directly to CEO Dudley, a marked change for a company long reputed to favor cost savings over mishaps.

Notably, Gilman says that "although it might be considered heretical, it's my belief that, in fairly short order, BP will apply for drilling permits in the deepwater Gulf. And furthermore, I'd be surprised if, after appropriate scrutiny, they aren't approved."

Gilman sees the well-publicized collapse of an Arctic exploration deal between BP and Russian company Rosneft as overblown, pronouncing the deal in the "7th inning" and suggesting that BP got "sandbagged." Additionally, the analyst feels there's room for BP to raise their dividend and continue to improve operationally. While noting that it's too soon to know for sure if Dudley is accomplishing true institutional change, Gilman feels there are encouraging signs. BP is his favorite name in the space, and he recently updated his price target to $70, over 50 percent higher than current levels.

Is BP redeeming itself as both a company and a stock? Only time will give us the definitive answer but, in the meantime, we'd love to get your take on the matter. Drop us an email at BreakoutCrew@Yahoo.com, or tell us what you think in the comment section below.

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