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Here's Why You Should Retain BP Stock in Your Portfolio

BP plc BP has risen 1.7% in the past three months compared with the industry’s 0.5%. Notably, the British integrated energy major has witnessed significant upward earnings estimate revisions for its 2020 and 2021 bottom line in the past 60 days.

Factors in Favor

The company, carrying a Zacks Rank #3 (Hold), has a strong portfolio of upstream projects which has been backing impressive production growth. Since 2016, BP has placed several key upstream projects online. All the key projects BP has been delivering over the years helped the company post record production levels. Notably, despite the coronavirus pandemic, BP has been progressing with its key upstream projects that will help the firm boost production by 900 thousand barrels of oil equivalent per day (MBoE/D) within 2021.

BP is also focusing on renewable energy business. Although renewable power business generates relatively lower returns than oil and natural gas operations, alternative energy is not exposed to volatility in commodity prices. In fact, companies can generate stable returns from renewable power, revealed BP. As such, the company plans to invest $70 million in Green Growth Equity Fund (“GGEF”) of India. The fund, being promoted by the India’s National Investment and Infrastructure Fund (NIIF) and the government of U.K., was established in 2018.

Notably, after the completion of the investment, India’s GGEF will be more focused on scaling up growth in zero carbon and low carbon energy solutions in the nation. Importantly, the investment is not only going to help India significantly lower greenhouse gas emissions but will also create a platform for the British energy major to invest alongside GGEF in many low-carbon projects in India that are commercially viable. The investment will also make BP a limited partner in GGEF and enable the company to represent on the advisory committee.

The fund, comprising investments from the governments of India and the U.K., has a target to reach roughly $700 million in investment commitments. Overall, with the investment strategy, BP is not only committed to reimagining energy for India but will also advance to become a net zero emission company by 2050 or sooner.

Possible Headwinds

The British energy giant expects the coronavirus pandemic to persistently hurt global energy demand. Also, the company believes that post COVID-19, there will be a growing transition to low-carbon economy since investors are increasingly pressing oil companies to drastically reduce carbon emissions, which is in line with the Paris climate goals.

Incorporating these, BP trimmed its forecast for Brent oil price from $70 per barrel to $55 until 2050. The new price outlook convinced this integrated energy firm to write-off of up to $17.5 billion from its assets value.

Analysts believe that the decrease in asset values will increase BP’s debt-to-equity ratio, thereby weakening the balance sheet.

Stocks to Consider

A few better-ranked players in the energy sector are Viper Energy Partners LP VNOM, EOG Resources, Inc. EOG and Pioneer Natural Resources Company PXD. While Viper Energy sports a Zacks Rank #1 (Strong Buy), EOG Resources and Pioneer Natural carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Viper Energy has witnessed upward estimate revisions for 2020 bottom line in the past 60 days.

EOG Resources has witnessed upward earnings estimate revisions for 2020 in the past 30 days.

Pioneer Natural has witnessed upward estimate revisions for 2020 bottom line in the past 60 days.

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