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Why the Beach Energy (ASX:BPT) share price is outperforming its peers today

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The Beach Energy Ltd (ASX: BPT) share price outperformed other energy stocks today after a top broker upgraded the stock.

The BPT share price added 0.4% to $1.39 on Friday when the S&P/ASX 200 Index (Index:^AXJO) lost 0.3% of its value.

The gain by Beach Energy also stands in contrast to other energy stocks. The Woodside Petroleum Limited (ASX: WPL) share price, Santos Ltd (ASX: STO) share price and Oil Search Limited (ASX: OSH) share price fell by around 0.3% each.

Beach Energy share price upgrade

The outperformance of the Beach Energy share price coincides with Citigroup upgrading the stock to “buy/high risk” from “neutral/high risk”.

The broker noted that the stock is more correlated with the Brent oil price than its peers despite Beach Energy selling more CPI-indexed gas. This means its income should be less affected by the oil price.

What’s more, Beach Energy is net cash and patient investors the opportunity to buy the stock that is well below intrinsic value when oil sells off.

Why now may be time to buy

With the oil price on the backfoot recently, this is a chance to buy the stock with a compelling margin of safety.

“We think the stock may be underperforming some peers due to a perceived lack of catalysts,” said Citi.

“This might be true, but unlike peers, BPT is not beholden to M&A markets functioning in order to sell assets to fund capex.

“This is a positive because there is no balance sheet overhang for BPT that we think is keeping investors on the sidelines for other energy stocks.”

BPT share price looking oversold

What’s more, too much bad news is priced into the stock. Even in Citi’s bear case scenario, investors buying the stock is getting a free carry on Cooper basin growth and Waitsia phase 2.

“If we include growth consistent with our model, the current share price implies a US$37 [per barrel] oil price into perpetuity, equal lowest among our covered names,” said Citi.

The current Brent price stands at around US$43 a barrel.

How much is the BPT share price worth?

The Beach Energy share price lost around half of its value over the past year. That’s behind the 33% drop in the STO share price and the 44% decline in the WPL share price. Only the OSH share price is faring worse as it plunged by 64%.

Citi’s 12-month price target on Beach Energy is $1.94 a share.

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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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