Oil Spill Settlement And Low Oil Prices Make BP Potential Takeover Target, Says Oppenheimer


In a research report issued today, Oppenheimer analyst Fadel Gheit maintained an Outperform rating on BP plc. (NYSE:BP) with a $55 price target, which implies an upside of 41.5% from current levels.

Gheit wrote, “We expect BP to generate operating cash flow of $27.7B in 2015, which would partially fund $24.5B CAPEX and $5.8B dividend, for a cash flow deficit of $2.6B, before share buybacks. The deficit will be funded from divestiture proceeds of $6B, cash on hand and additional borrowing. BP has the lowest P/E and second lowest P/CF multiples among peers and the highest divided yield. ROACE is below its peer average and net debt ratio is slightly higher. Its implied reserve value (IRV), adjusted for 15-to-1 oil-to- gas ratio, of $12.60/boe is the lowest in the sector and ~55% below the peer average, reflecting GOM liabilities and financial exposure to Russia.”

The analyst added, “A comprehensive oil spill settlement removes financial uncertainty, while continued low oil prices could accelerate industry consolidation. A merger involving BP and one of its peers would create the world’s largest oil producer and could generate >$10B annual cost savings.”

According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Fadel Gheit has a total average return of 7.3% and a 59.7% success rate. Gheit has a 4.6% average return when recommending BP, and is ranked #693 out of 3398 analysts.

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