Oil price has recovered from historical lows of February 2016. From $26.21 a barrel — the lowest since 2003 — crude jumped to $58.02 yesterday. With the problem of supply glut easing, big energy players are generating more cashflows for shareholders.
One such promising stock is BP Plc BP, which has plenty of upside potential.
Lucrative Repurchase Program
Recently, the British energy giant recommenced a share buy-back program, keeping with the plans announced along with the third-quarter 2017 earnings report. This makes BP the first leading energy player in Europe to recommence buybacks after 2014, when repurchases were stalled as crude price started falling on supply glut woes.
As per the program, BP will repurchase no more than 1.96 billion shares between Nov 15 and the company’s annual general meeting in 2018. The company’s strong financials, supported by crude price recovery, are backing this decision.
Impressive Earnings History
During the third quarter, BP reported adjusted earnings of 57 cents per American Depositary Share (ADS) on a replacement cost basis, excluding non-operating items. The bottom line not only surpassed the Zacks Consensus Estimate of 50 cents but was way higher than the year-ago 30 cents. Moreover, the improving financial position shows that the firm has come a long way since the 2010 oil spill incident in the Macondo Prospect.
The company has an impressive earnings surprise history as it has managed to surpass the Zacks Consensus Estimate in three of the last four quarters, the average positive earnings surprise being 26.8%.
Strong Potential to Generate Cash Flow
Investors should also know that BP, sporting a Zacks Rank #1 (Strong Buy), has strong potential to generate cash flow. Companies with strong operations generally have high free cash flow yield, indicating that the amount of money investors are generating is more than the amount spent to buy the stock.
Our proprietary model shows that free cash flow yield for BP, belonging to the Zacks Oil International Integrated industry, is 14.6%, way higher than 5.6% of the S&P 500 index.
Healthy Pricing Chart
Such developments are reflected in BP’s impressive price chart. Over the prior six months, the integrated energy firm has rallied 9.3%, outperforming the S&P 500 index’s 7.6%.
Other Stocks to Consider
Other top-ranked players in the energy space are China Petroleum & Chemical Corporation SNP, Northern Oil and Gas, Inc. NOG and ExxonMobil Corporation XOM. China Petroleum and Northern Oil sport a Zacks Rank #1 (Strong Buy), while ExxonMobil carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Headquartered in Beijing, China Petroleum is a leading integrated energy player. The company will likely witness year-over-year earnings growth of 59.1% in 2017.
Based in Minnetonka, MN, Northern Oil is an upstream energy player. The company’s 2017 revenues are estimated to grow almost 44%.
Headquartered in Irving, TX, ExxonMobil is the largest publicly traded energy firm. The company managed to beat the Zacks Consensus Estimate in three of the last four quarters, the average positive earnings surprise being 8.81%.
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