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The BP (LSE:BP) share price has fallen considerably in 2024, reflecting lower demand for hydrocarbons products and reports of a potential glut on the oil market. However, this could be an opportunity for eagle-eyed investors. That’s because, according to analysts, the BP share price could be undervalued by 30%.
The consensus of 18 analysts covering the stock is Outperform, suggesting it will be one of the better performing companies in the sector. The average target price for the oil company is 492p.
What’s behind the optimism?
Well, analysts have a variety of reasons for believing BP shares will trade higher.
UBS said BP shares are trading at close to the replacement cost of supplies, which it believes is overly punitive. Analysts set a price target of 525p, suggesting significant potential and noting that the share price should push upwards unless the company fails to cut costs and therefore has to reduce its share buyback programme.
Cost cutting is a core feature for analysts with bullish outlooks on BP. The British hydrocarbons giant has a much higher debt burden than its peers and trades at a significant discount to American oil companies, partially due to relative inefficiencies and return on capital.
Of course, oil prices are core to the company’s performance. US bank Morgan Stanley predicts Brent crude would average $70 a barrel — slightly below the current price — in the second half of 2025, which could support BP’s valuation.
There’s a caveat
However, at this point, it’s worth noting that there’s one important caveat. Brokerages and analysts have largely been reducing there price targets while retaining their broad outlook on the stock.
This reflects less bullish sentiment about oil, driven by concerns over global demand fluctuations, oversupply risks, and shifts toward renewable energy. While geopolitical tensions and supply disruptions can create temporary spikes, the long-term outlook remains a little uncertain.
Investors need to closely monitor these trends, as well as OPEC+ decisions and technological advancements in alternative energy sources. Donald Trump has to come into the equation too. He’s vowed to keep energy prices low during his presidency.
BP’s earnings forecast
With hydrocarbons companies, it can be really difficult to make your own forecasts. Simply because the entire premise of your forecast can be undermined by changes in oil and natural gas prices. So let’s have a look at what analysts’ consensus shows.
BP’s earnings aren’t expected to be particularly strong this year. The stock’s currently trading at 6.9 times earnings from 2023, but 18 times forward earnings for 2024. The forecast then suggest earnings recovering, with the price-to-earnings (P/E) ratio falling to 7.3 times in 2025 and 6.4 times in 2026.
However, the dividend forecast is more consistent with the yield expanding from 6.5% in 2024 to 7.3% in 2026, according to the forecasts.
Personally, I’m keeping a very close eye on BP. This could be a great opportunity to buy the stock if the forecasts are to be believed. But things can change quickly in the hydrocarbons sector and that worries me.
