According to Wall Street's most infamous investment bank Goldman Sachs, the BP(LSE: BP) share price is one of the most attractive in the FTSE 100 index today.
It seems Goldman likes BP because of the company's efforts over the past few years to invest in its future production potential. Earlier this week, the bank published a research note outlining BP's most attractive qualities, including the fact the firm has "one of the industry's strongest pipelines of new oil and gas projects" coming on-stream over the next few years.
These assets, the bank argues, should help BP grow free cash flow by around 5% per annum over the next five years, helping to support cash returns to investors while the company continues to meet obligations from the 2010 Gulf of Mexico disaster.
Goldman's analysts like the fact BP has been working so hard over the past few years to unlock the value from its oil portfolio, at a time when the rest of the industry has hunkered down. In fact, thanks to these efforts, the investment bank estimates "BP's portfolio of new projects is more profitable today at $60 a barrel Brent than it was in 2014 at $100 a barrel," making the company's oil and gas portfolio "amongst the best in the industry."
Several of the company's most significant capital projects, including the Shah Deniz Phase 2 in Azerbaijan and Tangguh Train 3 in Indonesia, are starting production during the next two years. So investors might not have to wait too long for the benefits to filter through to the bottom line.
Having said all of the above, the one critical variable BP has to contend with is the price of oil. This it has no control over. However, I believe that the way OPEC has acted over the past three years shows that the group is committed to keeping prices elevated.
Considering all of the above, it looks as if BP's performance will improve steadily in the year ahead. But what about the company's valuation?
Well, at the time of writing the stock is trading at a relatively expensive 16.2 times forward earnings, but I believe this understates the BP share price potential.
You see, since the beginning of the year, City analysts have increased their average earnings expectations for the full year by 7.1%. In comparison, the price of oil has risen by 14% over the same period. Due to economies of scale, it's reasonable to assume that BP's earnings have increased by a similar, if not higher amount.
With this being the case, I believe it is highly likely that the company will see substantial earnings revisions in the months ahead. What's more, the stock also offers a dividend yield of 5.3%, and as noted above, shareholder returns could increase over the next five years as BP brings new projects on-line.
Overall, with a market-beating dividend yield and bright growth outlook, it is easy to see why Goldman thinks the BP share price is one of the best in the FTSE 100.
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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended BP. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.