BP Plc (BP) is the best of those drilling for black gold.
Shares of the supermajor have surged on Tuesday after reporting a strong fourth quarter and forecasting positive momentum for oil prices in 2019. However, BP is not simply moving on macro shifts, but has separated itself from peers like Chevron (CVX) , Exxon Mobil (XOM) , and Royal Dutch Shell (RDS.A) .
"BP remains our Top Pick, and our preferred exposure among the Super-Majors," RBC Capital Markets analyst Biraj Borkhtaria said. "We see the right balance of growth, longevity and defensiveness in the business mix, while we see BP's refining business well positioned for IMO (International Maritime organization)."
He added that the cash generation capabilities should sustain dividends, buybacks, and even the company's recent penchant for acquisitions. Additionally, it curbs concerns on the company's Macondo payments related to the Deepwater Horizon oil spill.
The top pick status was echoed by Action Alerts PLUS portfolio manager Jim Cramer in his early reaction to the company's earnings.
"BP should be up more," he said as the stock bounced upward in morning trading. "It was really the best, Chevron wasn't as good, Exxon wasn't as good."
The Action Alerts team, which holds a 4.55% weight of BP in its overall portfolio, extolled the company's strong cash flow position and low break even point for oil prices as a key differentiator.
The cash flow certainly helps sustain a dividend that is among the highest in the sector.
"All in all, we believe BP is firing on all cylinders and continue to see improving efficiencies leading to better cash flows and profits over time as management makes progress in working down the company's organic cash break-even level from $50 per barrel currently, a key factor we believe will support increasing returns to shareholders," the AAP team commented. "Bottom line, our patience is paying off and thanks to the robust dividend, we have been and will continue to be compensated for it."
The team added that BP remains their top pick in the sector based on production growth and operating improvements that keep it running past competition. They reiterated their "One" rating on the stock, which is the most bullish outlook offered by the AAP team.
The production growth was a key metric as full-year production at BP reached 3.7 million barrels of oil equivalents per day (BOE). That bested 3.08 million barrels from Chevron, 3.66 million barrels from Royal Dutch Shell, and came just short of 4 million from Exxon.
The high level of production is the highest from BP since before the Deepwater Horizon hangover and is only expected to gain momentum from here as the myriad of projects added by the company in recent years, including its blockbuster $10.5 billion deal for BHP Billiton's (BBL) Permian assets, take off.
"Market concerns over BP's historical perceived weaknesses as operator should by now be alleviated by the successful, on- (or ahead-of-time) and below-budget start-up of six major new projects in 2018 (with Claire Ridge the latest), making a total of 19 major project startups over 2016-18," Societe Generale analyst Irene Himona noted.
She set an "Overweight" rating on the stock and joined a chorus of analysts raising price targets after the earnings release.
In the near term, the bullish outlook could foster a strong technical position to push higher.
"With a boost from the fundamentals, BP shares could rally to break the 200-day moving average line and challenge the late September-early October highs in the $46-$47 area," Real Money's technical analyst Bruce Kamich proposed. "Traders could operate from the long side, risking a close below $39.50 for now."
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