Last Tuesday, BP plc BP reported first-quarter 2025 earnings, which missed expectations. Lower liquid price realizations and weaker refining margins resulted in the setback. However, the British energy giant discussed new upstream project launches and discoveries, leading to an improved core business outlook.
Before analyzing the factors, let’s first review the first-quarter results.
BP’s Q1 Earnings Snapshot
BP reported first-quarter adjusted earnings of 53 cents per American Depositary Share on a replacement-cost basis, excluding non-operating items. The figure lagged the Zacks Consensus Estimate of 56 cents. The bottom line also declined from the year-ago reported figure of 97 cents.
Total quarterly revenues of $47.9 billion missed the Zacks Consensus Estimate of $57.2 billion and declined from $49.9 billion reported a year ago. For more details, read our blog: BP's Q1 Earnings & Revenues Miss Estimates on Weak Refining.
Chevron Corporation CVX and Exxon Mobil Corporation XOM are two other prominent integrated energy companies. Both XOM and CVX have announced their earnings for the March quarter today. Notably, both ExxonMobil and Chevron beat the Zacks Consensus Estimate for earnings.
BP’s Successful Startup of Key Upstream Projects
Along with the first-quarter 2025 transcript, BP revealed that it has started producing oil and gas from three key projects, namely, Cypre in Trinidad, Raven infill in Egypt and GTA (Greater Tortue Ahmeyim) in Mauritania and Senegal. With these developments, BP can increase its production capacity by a total of 100 thousand barrels per day (MBbl/D), thereby leading to its goal of increasing its production capacity by 250 MBbl/D by 2027.
Along with the new project startups, BP made six successful oil and gas discoveries in the Gulf of Mexico, Trinidad, Egypt and Namibia. Thus, the integrated energy giant will be capable of generating additional oil and gas volumes, glorifying its production outlook.
BP Strengthens Position in the Renewable Gas Market
BP has a broader strategy for transitioning to lower-carbon energy solutions, which was reflected in its acquisition of Archaea Energy, a U.S.-based renewable natural gas (RNG) company, on Dec. 28, 2022. This is because after capturing methane emissions from landfills, Archaea converts them into renewable natural gas, which is a cleaner alternative to fossil fuels.
The most important development on this front is the Archaea Energy Integration, reflecting the act of the British energy major formally moving Archaea into the "Gas and Low Carbon Energy" business segment. Thus, Archaea Energy Integration remains a key part of BP’s energy transition initiatives. BP reiterated that by 2026, Archaea is expected to become free cash flow positive, which will mark a major milestone in the company’s energy transition space.
BP has progressed well in the divestment of non-core assets. Along with the first-quarter transcript, it announced that year to date, it has either completed or signed $1.5 billion in divestment agreements. It now aims for $3 billion to $4 billion in divestments for this year, with the possibility of the majority of proceeds coming in the second half.
Notably, BP has a multi-year divestment program of $20 billion to repair its balance sheet strength. Notably, the divestment proceeds will help the company reach its net debt target range of $14 to $18 billion by 2027.
What Should Investors Do With BP Stock?
Hopefully, these positive developments will be reflected in the stock’s price performance, which is not quite impressive at the moment. Over the past year, BP has plummeted 23.8%, underperforming the 11.5% decline of the composite stocks belonging to the industry. BP also underperformed XOM and CVX, which slipped 5.9% and 11.6% over the same time frame.
One-Year Price Performance
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On the valuation front, the stock is not pricy, with BP trading at a 2.68x trailing 12-month Enterprise Value to Earnings Before Interest, Taxes, Depreciation and Amortization (EV/EBITDA), which is at a discount compared with the broader industry average of 3.95x.
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Although it seems that it is the right time to bet on BP, investors should wait as there remain uncertainties surrounding the stock. In the transcript, BP explained that although its refineries operated efficiently, earnings from refining were weak due to an oversupply of gasoline in the U.S. Midwest and a surplus of diesel in Rotterdam, which caused fuel prices to drop.
Also, BP’s effective tax rate rose to approximately 50% in the first quarter, marking a sharp increase from the earlier periods. This spike was mainly due to a larger share of the company’s profits coming from its oil production operations, which face higher tax rates than its other segments, such as customer-focused fuel sales or low-carbon energy initiatives.
However, the company’s overall outlook remains positive. BP’s short-term Wall Street average price target is 33.3% higher than the last closing price of $27.88, with the highest target set at $56, representing a potential upside of 100.9%.
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As a result, existing investors should hold onto their shares to benefit from this upward price trend. However, for those considering a new investment in BP, this might not be the best time. It carries a a Zacks Rank #3 (Hold) You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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