A minor follow-up on BP

I note that BP (NYSE: BP) traded as high as 44.37/share – I had projected during the brunt of the Gulf of Mexico oil spill that BP would likely rise to about $42-$47/share by the end of the year. It’s pretty close to the end of the year, so I would consider this to be a successful prediction.

There are so many other factors affecting BP’s valuation that there is no longer any “political edge” to the stock valuation, beyond the usual political considerations that go around with oil companies. All of the transient effects of the oil spill have been well priced into the stock – notably the implied $50 billion cost of clean-up, which has been cleanly lopped off BP’s market capitalization.

The company took a massive charge-out, so it will be showing negative net income for the next 9 months, but after this they will be showing their usual large profits – around $18 billion or so. This gives them a valuation of about 6-7 times projected earnings, or about a 15% earnings yield. Assuming the market mania for yield continues to maintain itself, whenever BP gets around to re-instating its dividend (which was historically 84 cents per share per quarter), this will give it an 8.1% dividend yield, and then the lemmings will buy into the company, raising its valuation.