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How Analysts Rate Refiners BP and Shell ahead of Their Earnings

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Analysts’ ratings for integrated energy companies

Let’s review analysts’ opinions on BP (BP) and Royal Dutch Shell (RDS.A) ahead of their first-quarter earnings results.

BP and Shell are covered by ten Wall Street analysts each. Of these, 50% and 80% of analysts have rated BP and Shell as “buys,” respectively.

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Why analysts’ opinions on BP are divided

Analysts’ opinions on BP are divided likely due to its weaker financials paired with its robust upstream portfolio. The company’s debt and cash flows don’t look favorable. Its cash flow from operations fell short of covering its capex, acquisition, and dividend outflows in 2018.

Further, BP’s total debt-to-capital ratio of 39% is higher than the peer average. ExxonMobil, Chevron, and Shell had debt ratios of 16%, 18%, and 28%, respectively, in 2018. In 2018, BP’s above-average debt-to-capital ratio and cash flow shortfall made it financially weak compared to its peers.

However, BP has a healthy pipeline of upstream projects. The company expanded via capex and acquisitions in 2018. Its mean target price is $49 per share, implying a potential 12% rise from its current level.

Shell has mostly “buy” ratings

Shell has received a higher number of “buy” ratings than BP. Shell’s mean target price is $79 per share, implying a potential ~26% rise from its current level—the highest implied gain among its peers. ExxonMobil’s, Chevron’s, and BP’s implied gains are 4%, 12%, and 12%, respectively.

Shell’s financials have been strengthening lately. Its debt position improved in 2018. In the year, Shell’s total debt fell by $9 billion year-over-year. Its cash flows have also risen. In 2018, the company’s cash flows from operations stood at a surplus after accounting for its capex and dividend outflows—a favorable situation.

The improvement in Shell’s position has been the result of its strong upstream portfolio, robust strategy, and crucial downstream segment. It’s no surprise that most analysts have favorable opinions on the stock.

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