With stocks generally rising in 2020, investors are still looking for new ideas after a stellar gain of almost 29% in the S&P 500 for all of 2019. Most stocks in oil and gas have been sold off drastically from their highs of even 2018, let alone from the highs seen in prior years. BP PLC (NYSE: BP) has not been immune to the selling pressure in oil and gas, and its American depositary shares have never really recovered from all the way back to the Deepwater Horizon disaster from 2010.

A fresh report from Jefferies featured BP as a new Top Franchise Pick in overseas coverage, and the firm’s Jason Gammel sees serious potential upside that is stronger than the typical 8% to 10% for new Buy and Outperform ratings of companies that would be in the Dow Jones industrials or the S&P 500. The firm’s local target of 590 pence would imply upside of about 18.5% (close to $46.00), without even considering BP’s super-high dividend yield.

This report noted that investors have dismissed BP’s efforts and steps being taken to increase shareholder returns. Its 6.3% dividend would imply a total return upside of close to 25% if the firm is correct.

The Jefferies report suggests that the inflection in company fundamentals is not yet reflected in BP’s share price. It also believes that BP’s financial gearing has peaked and a stronger balance sheet will lead to higher cash returns to its shareholders.

According to Gammel, BP is on track to deliver on its five-year plan from 2017, with the divestitures of around $10 billion, and that an increase to expected shareholder returns would not solely be limited to a dividend increase.

As far as where Jefferies is different from other firms, Gammel’s report said:

The stock was hit hard after its third quarter (2019) results, despite another good set of numbers and good progress on delivering its strategy, due to a deferral in dividend increase that was generally expected to be announced during the second half of 2019. Since then the stock is -2% in U.S. dollar terms versus the E.U. average of up 2%. However, we believe that the market has dismissed the company taking other steps to increase shareholder returns through 1) suspension of the scrip dividends, 2) the cumulative offset of scrip dilution implies $1.8 billion of stock buybacks in the fourth quarter of 2019.

BP closed up 0.3% at $38.84 in New York on Thursday, in a 52-week trading range of $35.73 to $45.38.

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