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Why Wall Street Analysts Are Divided on BP Stock

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Analysts’ opinions on BP

BP (BP) stock is covered by 11 Wall Street analysts. Of this total, five (or 45%) have given it “buy” or “strong buy” ratings, another five (or 45%) have given it “hold” ratings, and only one has given it a “sell” rating.

BP’s mean target price stands at $50 per share, implying a potential 24% upside from its current level.

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Why are Wall Street analysts divided on BP stock?

Analysts are expecting a steep rise in BP’s earnings in 2018. BP is expected to post ~96% growth in EPS in the year—higher than most of its peers. This earnings growth seems achievable given BP’s expanding upstream portfolio. The company’s robust project pipeline is expected to boost its hydrocarbon production. Six of the company’s upstream projects have already begun production this year. We’ll discuss more about BP’s upstream portfolio in the next article.

However, BP has a relatively weak debt position. Though BP’s debt position has improved in the past several quarters, it still hasn’t reached a comfortable position. BP’s total debt-to-capital ratio stands higher than the peer average, meaning that the company has higher debt in its capital structure compared to the peer average. Usually, lower debt on a balance sheet provides a company with the financial strength and flexibility to easily face tough times. We’ll discuss more about BP’s debt position later in this series.

Overall, analysts’ opinions on BP are divided likely due to its high earnings growth and weak debt position.

Peers’ “buy” ratings

BP’s peers ExxonMobil (XOM), Chevron (CVX), and Royal Dutch Shell (RDS.A) have been rated as “buys” by 26%, 79%, and 80% of analysts, respectively. Also, Total (TOT) and Petrobras (PBR) have been rated as “buys” by 80% and 43% of analysts, respectively.

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