BP’s shares took a tumble on Wednesday following the release of the company’s third-quarter earnings report, which fell short of analysts’ expectations. This disappointing performance prompted several analysts to cut their price targets for the oil and gas giant, reflecting a growing concern about the company’s future prospects.
RBC Capital Markets analyst Biraj Borkhataria lowered his price target to 480p from 525p while maintaining a ‘Sector Perform’ rating. Borkhataria attributed the downgrade to BP’s recent challenges, including a lackluster performance in a period of peak industry profitability. He argued that the company missed an opportunity to significantly reduce its debt in 2022 and 2023, a move that would have made its distribution program more resilient compared to its peers.
The analyst also pointed to BP’s increasing net debt, which rose from $33.3 billion to $35.3 billion in the third quarter. Borkhataria expects this figure to climb to approximately $40 billion by year-end, highlighting the company’s need to prioritize deleveraging over growth capital expenditures.
Goldman Sachs analyst Michele Della Vigna also cut his price target, reducing it to 560p from 580p while maintaining a ‘Buy’ rating. However, Vigna expressed concerns about lower oil and gas price realizations, especially in the European gas market, which could lead to reduced earnings and cash flow. He also highlighted the potential for lower-than-expected recovery rates in mature offshore oil and gas fields, which could result in a decline in production growth and cash flow.
Both analysts believe that BP needs to adjust its ‘surplus’ payout ratio and allocate more cash towards strengthening its balance sheet. The analysts adjusted their EPS estimates for BP, reflecting a decrease of 6% for 2024 and 10% for 2025, primarily due to lower refining earnings, partially offset by increased contributions from gas and low-carbon initiatives.
While BP remains a large and influential player in the energy sector, the company faces significant headwinds in the current market environment. The analysts’ concerns over BP’s debt levels, missed opportunities, and reduced profitability indicate that investors may be taking a more cautious approach to the company’s stock, leading to the recent price decline.
