On Thursday, Piper Sandler adjusted the stock price target for BP shares (NYSE:NYSE:BP), increasing it to $43.00 from the previous $40.00, while maintaining a Neutral rating on the stock.
The revised stock price target is based on a balanced approach, giving equal weight to a free cash flow yield target for 2024 with an oil price assumption of $80 per barrel of Brent crude, in comparison to the S&P, and a forward value/EBITDA multiple of 7.0 times for fiscal year 2024, which is a slight decrease from the previous 7.5 times.
The firm's analysis includes ConocoPhillips' (NYSE:NYSE:COP) short-term investments, such as equity in Cenovus Energy (NYSE:NYSE:CVE), in the 'cash' category. This adjustment reflects a view that European integrated oil companies (IOCs) have largely caught up with their U.S. counterparts in terms of shareholder returns, considering both size and visibility.
The analyst noted that among European oil companies, there is particular interest in BP and Shell (NYSE:LON:SHEL) due to their relatively discounted valuations and the potential for a significant rate of change in their business operations. While the firm prefers Shell's progress in capital expenditure and cost management, it acknowledges the uncertainty surrounding BP's ability to replicate Shell's recent performance.
The report also anticipates a strong first quarter for Shell, driven by downstream tailwinds and upstream reliability improvements. In comparison between Exxon Mobil (NYSE:NYSE:XOM) and Chevron (NYSE:NYSE:CVX), Piper Sandler expresses a preference for Exxon Mobil in both the long term and leading into the first quarter.
Still, with Chevron currently trading at approximately a 3% discount to Exxon Mobil based on the estimated 2025 free cash flow yield, the market seems to be factoring in a significant chance of Exxon Mobil's success in arbitration. The analyst suggests that Chevron's share price could see an improvement if the Hess Corporation (NYSE:NYSE:HES) deal concludes successfully.
InvestingPro Insights
Following Piper Sandler's updated price target for BP, it's worth noting some key InvestingPro Data metrics that could be of interest to investors. BP's market capitalization stands at $105.51 billion, with a trailing P/E ratio of 6.35, reflecting a valuation that may be attractive to value investors.
Moreover, the company's dividend yield is currently at 4.5%, highlighting its commitment to returning value to shareholders, a fact underscored by its 33 consecutive years of maintained dividend payments. With a PEG ratio of just 0.01, BP appears poised for growth relative to its earnings.
InvestingPro Tips suggest that BP's management has been proactive in share buybacks, signaling confidence in the company's financial health. Moreover, despite some analysts revising earnings downwards, BP is still expected to be profitable this year, with a strong return over the last three months. The stock's low price volatility might also appeal to investors seeking stability in the often-turbulent energy sector.
For those interested in further analysis and additional InvestingPro Tips, there are more insights available on BP, which can be accessed through https://www.investing.com/pro/BP. Remember to use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. With these insights in hand, investors can make more informed decisions regarding BP's stock amidst the evolving landscape of the energy market.
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