Morgan Stanley downgraded BP (BP) to Underweight from Equal Weight with a price target of $26.50, down from $29.40. The firm adjusted ratings in the European energy group, saying the sector’s “fortunes remain closely tied to oil markets.” Morgan Stanley expects oil to enter a “meaningful surplus” after the summer. As such, it foresees downside risk to earnings and buybacks, upside risk to net debt, and does not find valuations compelling at current share levels. The firm took its industry view back to “Cautious.” BP’s elevated balance sheet gearing leaves it more sensitive to changes in macro conditions, contends Morgan Stanley.
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