BP p.l.c. Hold Rating: High Leverage and Limited Financial Flexibility Overshadow Operational Strength

Analyst Christopher Kuplent of Bank of America Securities reiterated a Hold rating on BP p.l.c., boosting the price target to p420.00.

Christopher Kuplent has given his Hold rating due to a combination of factors influencing BP p.l.c.’s financial outlook. Despite a stronger than expected operational performance in both the Upstream and Downstream sectors, BP’s underlying leverage remains higher compared to its peers, with a leverage ratio of 2x. This financial structure limits BP’s ability to engage in buybacks without relying on asset disposals, even at a Brent oil price of $70 per barrel.
Additionally, BP’s economic net debt has increased significantly, now constituting over 65% of its market capitalization, which raises concerns about the company’s financial flexibility. Although BP’s recent oil discovery and better-than-expected quarterly results provide some positive momentum, the company’s cash flow is heavily committed to capital expenditures, hybrid payments, and dividends, leaving little room for balance sheet improvements. Consequently, BP’s total cash yield does not offer a compelling premium compared to its better-funded peers, such as Shell and TTE, which are rated more favorably.

In another report released today, UBS also maintained a Hold rating on the stock with a p425.00 price target.