Consolidation coming. With Exxon at $59, CNOOC at $164, China Pet at $78, Oxy Pet at $75 and Conoco Philips at $55, BP should be worth at least $50, will oil spill practically stopped. May be higher if some of these majors show an interest. It's a matter of time.
Both sides of the trade have merit, but for me, BP's earnings power will make it a $50 stock; it's just a matter of time - six months, a year, two years...who knows.
With Obama literally swimming in the Gulf, it's clear that efforts are being made - at the highest level of government - to restore normalcy to the region. The world is moving on, the spill is old news.
But you also have to consider the intangibles, like a very bad history of screw-up’s.
Recent example: oil spill in the GOM, toxic chemicals released at Texas City refinery.
If they clean up their act, maybe they will be worth more in the future, but I don’t see that happening yet.
It's a $50 stock based on comparative valuations, not share prices. BP is expected to earn $6.58 per share next year, making stock (at the current share price of $38) trade around 6X earnings. That's cheap compared with Exxon that trades around 12X earnings.
So, at $50; BP stock would trade around 8X earnings - still cheap compared with it's peers. At $40, it's a steal. If you believe oil prices are going higher, then the case is even more bullish.