On Wednesday, Piper Sandler adjusted its outlook on BP (NYSE:BP) shares, lowering the price target to $40 from $43, while retaining a Neutral rating. The firm cited the second quarter as difficult for energy investors, noting a disconnect between the performance of Exploration & Production (E&P) stocks and recent crude price strength, as well as U.S. refining stocks' indifference to negative earnings revisions.
Despite the challenges, Piper Sandler expressed a general preference for E&Ps over refiners due to anticipated negative downstream revisions in the second half of 2024. ConocoPhillips (NYSE: NYSE:COP) was highlighted as the firm's top large-cap pick, attributed to its valuation discount alongside superior growth, cash return, and resource depth.
For U.S. refiners, the firm acknowledged weaker than expected earnings in the second quarter, influenced by crude differentials, crude backwardation, and secondary product headwinds.
Further negative revisions are expected in the latter half of 2024, yet the resilience of stock prices and margins, which are believed to have reached their near-term bottom, contribute to an uncertain outlook for the near term. HollyFrontier Corp (NYSE: DINO) and Valero Energy (NYSE: NYSE:VLO) were mentioned as preferred picks within the refining sector.
The revised price target for BP is based on a balanced weighting between a Free Cash Flow (FCF) yield target relative to the FTSE 100 and a target FY24 EBITDA multiple.
The multiple was adjusted to 4.0x from 4.5x, reflecting a lower relative portfolio depth and growth, with a 3.0x discount compared to Exxon Mobil (NYSE: NYSE:XOM). Piper Sandler's valuation approach combines these factors to arrive at the new price target for BP.
In other recent news, Wells Fargo has revised its price target for BP shares to $41.00, down from $42.00, due to a weaker Q2 earnings outlook. The new estimates for BP's second-quarter earnings are $0.88 per share, a decrease from the previous $1.08.
In other developments, BP has shifted its strategy to slow down renewable projects and concentrate on oil and gas, with a new CEO, Murray Auchincloss, implementing a hiring freeze and halting the launch of new offshore wind projects.
Shell (LON:SHEL) is set to strengthen its position in the liquefied natural gas (LNG) market with the acquisition of Singapore-based LNG company Pavilion Energy. This move aligns with Shell's plan to increase its purchased LNG volumes by 15-25% compared to 2022.
In legal news, California is pursuing oil profits in a climate deception case against major energy corporations, including Exxon Mobil, Chevron (NYSE:CVX), Shell, BP, and ConocoPhillips. The U.S. Supreme Court is also consulting with President Joe Biden's administration regarding a lawsuit filed by Honolulu against several major oil companies, including BP and Shell.
InvestingPro Insights
Piper Sandler's recent adjustment of BP's price target comes at a time when the company's shares are trading near their 52-week low, indicating potential undervaluation. According to real-time data from InvestingPro, BP's Market Cap stands at $94.7 billion, with a P/E Ratio of 10.73. These figures suggest that the stock may be attractively priced, especially when considering the Adjusted P/E Ratio for the last twelve months as of Q1 2024, which is even lower at 8.53.
InvestingPro Tips highlight that management's aggressive share buybacks and the stock's low price volatility could be seen as signs of confidence in the company's stability and future performance. Additionally, BP's dividend yield of 4.94% and its track record of maintaining dividend payments for 33 consecutive years may appeal to income-seeking investors. It's also worth noting that analysts predict BP will be profitable this year, which could provide a further boost to investor sentiment.
For readers interested in a deeper analysis, there are additional InvestingPro Tips available, which can be accessed by visiting the dedicated BP page on Investing.com. By using the coupon code PRONEWS24, readers can get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, unlocking valuable insights that could inform investment decisions.
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