I find the recent upward stock movement intriguing given the broader market decline and decline of other majors. There are a few possible reasons, the street simply believes the stock to be overvalued, perhaps there is some M&A activities coming, strong 1Q results are also a possibility. That is just to name a few, the point is that the stock upward moving is not coincidental. This stock should not be yielding more than 4.5%, which places its share price in the low $50s.
Momentum is clearly on BP's side with oil prices moving up, the worse in terms of fines already baked in and a tremendous amount of cost savings and price deflation hitting the bottom line. I predict a solid 1q result and better in subsequent quarters. As I see it, BP should not have a dividend yield higher than 4.5%, hence, the target price of $53/sh over the coming 12 months. By the way, as to the fines, I expect less than $10b and payable over 5 to 10 years. Otherwise, I expect the appeals to last 20 years, just like Exxon.
Dividend is clearly safe in 2015 and 2016. BP has room to increase its gear ratio while at the same time reduce capex. A third lever is the ongoing cost reduction effort. BP was already trimming overhead that was accumulated post macondo, with the recent oil prices, this effort has doubled in intensity. Plus, third party spend is falling at an aggressive pace which will benefit 2H15 and all of 2016. Lastly, oil prices will most likely edge it self to $60s in 2H15 and marginally higher in 2016. This too will help. Some analyst are calling for $80/b oil 2H16.