BP Gave Investors The Magic Numbers, Announcing More Buybacks With A Flourish

BP Gave Investors The Magic Numbers, Announcing More Buybacks With A Flourish
Paul Allison, CFA

17 days ago2 mins

What’s going on here?

BP made like a magician on Tuesday, distracting investors from fumbled profit with a jazzed-up buyback schedule.

What does this mean?

Oil and gas are BP’s bread and butter, but major industries have been trying out the energy equivalents of sweet potato wraps and vegan spreads lately. So with barrels of oil left on the shelves and weighing on the slippery stuff’s price, BP made half as much profit last year as it did the year before. The oil giant made that up to investors, though, announcing that it’ll buy back $14 billion worth of stock – nearly 15% of the company’s total value – by the end of next year. That’ll massively reduce the number of shares out there, potentially increasing the value of the remaining ones. The prospect of souped-up stock prices seems to have won investors over, at least for now: BP’s shares picked up by 5% after the announcement.

BP earnings

Why should I care?

For markets: Snakes and ladders.

Businesses tend to buy their own stock when they’re feeling confident about the future. After all, they don’t want to spend money on a falling investment, either. But buybacks can be seen as an admission of defeat, indicating that a company has no better opportunities to spend its money on. Investors tend to see through those cases, eventually sending the stock right back to where it started, or worse.

BP stock
Source: Google Finance

The bigger picture: Hey, big spender.

BP has, up to now, had no shortage of expensive side projects. The British firm has been investing billions into clean energy initiatives, a bid to keep a seat at the table for decades to come. That’s a punt that will take years to pay off, and the firm’s traditionally minded shareholders seem to need some convincing in the meantime. They believe BP is spending too much too soon, a stark contrast to the slow-and-steady approach that US firms have been rewarded for taking.

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