BP Downgrade After Earnings Miss and Management Shock
Oil majors have been the center of attention in the aftermath of oil prices powering and finding support above the $ 80-a-barrel level. Investors have fallen in love with them in anticipation of bumper returns and rewards on dividends and buybacks. Consequently, most investors have continued to ramp up positions, pushing the stocks up the charts to the extent of outperforming the market. However, not any more.
Analysts at JPMorgan are the latest to sound warning bells signaling that upward momentum in the oil market may be fading. The analysts have downgraded BP to underweight, equivalent to a sell rating. The rating distinguishes the oil major from Chevron, Exxon Mobil, Shell and TotalEnergies, which continue to enjoy positive ratings.
The negative rating on BP comes on the heels of TotalEnergies being upgraded by analysts at Mediobanca SpA. It also comes against the backdrop of the company delivering a significant miss on third-quarter profit. The company had a $3.3 billion in Q3 profit, down 59% from the $8.15 billion paid a year ago. The drop came as revenues and other incomes fell by 6.5% to $54 billion.
The earnings miss has seen BP stock come under pressure, dropping by about 7% since it delivered its Q3 report. Amid the recent drop, the stock is still up by about 5% for the year, supported by the high oil prices. Nevertheless, the oil major remains under pressure amid the falling crude oil prices.
Prices have dropped below the $ 90-a-barrel level and are at risk of falling below the $ 80-a-barrel level. The drop comes on growing concerns about demand in the aftermath of China’s critical oil import reporting disappointing economic data that signals the economy might be slowing down.
Declining oil prices are not the only headwind taking a toll on BP sentiments in the market. Management shocks in the aftermath of Chief Executive Officer Bernard Looney resigning over failure to disclose past relationships with colleagues also take a toll on its sentiments. The shakeup could not have come at a worse time as BP is trying to persuade investors about its long-term prospects as it transitions to a low-carbon energy entity.
Better Oil Plays
BP faces the risk of lagging as its peers led by Exxon Mobil and Chevron has insisted on sticking closely to their core oil and gas business amid the low carbon push. Consequently, they have been more appealing to investors, especially when oil prices find support above the $80 a barrel level.
Oil and gas majors refocused on their core business have been winning back investors instead of companies embracing the net-zero targets. The Russia-Ukraine war, which triggered a big deficit in the market, triggered a massive opportunity that the companies are increasingly taking advantage of as oil prices stabilize above the $80 a barrel level.
Companies like Sell TotalEnergies and Eni SpA have emerged as big winners in signing big supply deals that would put them at the heart of Europe’s energy ecosystem; for investors looking to bet on the oil and gas industry, Exxon Mobil and Chevron have emerged as solid plays.