Oppenheimer Says BP Is Worth $50/Share, But Why?

In a report published Thursday, Oppenheimer analyst Fadel Gheit raised his price target on BP plc BP to $50 a share with an unchanged Outperform rating. The company is expected to be free cash flow positive in 2016, he wrote.

Gheit noted that BP lowered its 2015 capital expenditure budget to $20 billion from $22.9 billion in 2014. Moreover, the company expects $1 billion in cost cuts, in addition to the 20 percent or more cost deflation from its suppliers and contractors.

Related Link: Why Exxon's Long-Term Outlook Is 'Cloudy'

Using these figures, Gheit calculated BP's operating cash flow in 2015 will be $22.5 billion and $27.3 billion in 2016, after funding $20 billion in capital expenditure and a $5.95 billion dividend in each year. The company is expected to have a free cash flow deficit of $3.6 billion in 2015, according to the firm's analysis.

Of greater note, BP is projected to be cash flow positive by $1.3 billion in 2016 (before asset sales and share repurchases).

"Management believes that the portfolio is diverse enough to balance fiscal and geopolitical risk while allowing it to focus on its strengths, which provides a unique platform for the future," Gheit explained. "The company also believes that its gas position has the potential to make strong contribution to cash flow and return, along with its established oil positions."