RBC Capital Markets on Thursday reiterated BP's (BP.L) outperform rating, with a price target of 7 pounds sterling, projecting the oil and gas giant will achieve its full-year 2027 net debt targets earlier than expected.
Amid continued "highly supportive" macroeconomic conditions, the research firm noted that, along with the market, it anticipates BP will hit its 2027 net debt goal of between $14 billion and $18 billion by the end of 2026.
"Relative to the $56bn net liabilities stack currently (debt, leases, hybrids), we see a more appropriate level of ~$30bn, implying a reported net debt target of ~$5bn, which could be achieved by mid-2027," analysts wrote. "We think the stronger macro environment should lead to higher upstream divestment valuations, however, it should also mean BP can be more selective and transact for value. Better than being a forced seller to reduce debt."
On the earnings side, RBC made minor adjustments to its estimates, mainly related to the BP's downstream business, noting that the sale of its Gelsenkirchen refinery eliminated the drag on profitability and increased its refining margin. As such, the research firm raised its EPS forecasts for full-years 2027 and 2028 by 5.8% and 8%, respectively, to $0.89 and $0.83.
"BP continues to screen cheap (12.4% 2027E [free cash flow] yield [versus] peers 8.3%), however, rampant headlines on boardroom drama may lead investors to hesitate. Evidence of delivery on strategic goals (de-leveraging, structural cost reduction) is key, and we see room for BP to surprise positively on debt reduction. In a year's time, what will investors be talking about - the balance sheet? The board? Hopefully neither," the note said.