BP Stock: Analysts Are Mostly on the Fence

Analysts’ opinions on BP

Of the ten analysts covering BP (BP), four (40%) recommend “buy” or “strong buy,” five (50%) recommend “hold,” and one (10%) recommends “sell.” Jeffries recently cut its target price for BP to $48.60. However, Goldman Sachs has added BP stock to its Conviction List. Analysts’ mean target price for BP is $49, implying an 18% upside.

BP Stock: Analysts Are Mostly on the Fence

Why analysts have mixed opinions on BP

Analysts’ opinions on BP are divided, likely due to the company having high earnings growth expectations along with a weak debt position. This year, analysts expect BP’s earnings to grow ~74%, which seems achievable based on its high upstream and downstream earnings in the first half. In H1 2018, BP’s adjusted earnings were 143% higher YoY (year-over-year). As discussed previously, BP’s upstream earnings are expected to rise YoY in Q3 2018, and to be slightly offset by lower downstream earnings. Overall, the company’s earnings are expected to grow steeply this year.

Although BP’s debt ratio (or debt-to-capital ratio) has improved in the past several quarters, it is still higher than ExxonMobil’s (XOM), Chevron’s (CVX), and Royal Dutch Shell’s (RDS.A) ratios. Analysts may maintain their “hold” and “sell” ratings for the stock until the company’s debt ratio falls below peers’.

Peers XOM, CVX, and Shell have been rated “buy” by 30%, 75%, and 88% of analysts covering the stocks, respectively. Total (TOT) and PetroChina (PTR) have been rated “buy” by 67% of analysts.