Following competitor Shell's record-breaking performance last week, eyes are on oil giant BP for its earnings tomorrow.

In recent years, BP has not been one of the best-performing oil firms. Since the Deepwater Horizon disaster, BP shares has lagged many of its oil peers. BP has has been a laggard in its industry even as it has closed that chapter of its history. Shares are presently trading lower than they were before to the pandemic, which is rather unexpected considering the rise in oil prices and industry earnings since then.

This raises the question: Is BP's stock undervalued for good cause, or is the market fundamentally undervaluing the stock? BP has some self-inflicted problems, but there's enough value here – both relative and absolute – to sustain a positive outlook for the upcoming years.

Investors will be expecting that BP can match its rival British petro-yearly group's earnings of £32 billion for 2022. 

Despite dropping oil and gas prices from last year, its shares have surged approximately 17% since August as analysts expect the end of China's Covid limits would ignite a boom in demand from the energy-hungry country. 

Weak output from sanction-hit Russia, USA’s need to replenish oil stocks, and the OPEC cartel's apparent refusal to open the taps further might all work in the company's favour by keeping prices high.

However, this might be disrupted by the danger of a worldwide recession, which would put a damper on demand.

Keeping this in mind, investors will most likely be looking at BP's projection for the year ahead, in addition to the projected solid set of results for 2022. 

Analysts predict a similar outcome to Shell's, which saw its yearly earnings more than quadruple.

BP's UK tax bill and how much it will pay this year will be scrutinised after Chancellor Jeremy Hunt increased the windfall tax on North Sea revenues to 35% from 25%, bringing the overall burden to 75%. 

Climate-conscious analysts will be watching for remarks on a renewable energy plan, following news earlier this week that BP is considering scaling down its green pledges in order to capitalise on soaring fossil fuel costs.

Minipip’s opinion (not advice):

BP shares are in an attractive position in relation to the energy sector. They are neither the cheapest or most proactive of the major energy companies today. And, naturally, many investors are wary of BP's more rapid move to renewable energy than most of its sector counterparts. 

However, there is a lot of relative value in BP stock when compared to other stocks in the sector, such as Exxon Mobil, whose shares are already nearing new all-time highs.

As a result, BP’s stock is currently a buy in Minipip’s opinion. We anticipate that shares will surpass the S&P 500 and the FTSE100 considerably during the next few years. BP, like much of the energy sector, is well-positioned to generate huge capital gains, a substantial buyback programme, and a hefty dividend in the long term. That should be enough to satisfy the majority of investors.

(BP.com, Investing.com)