Market Overview

BMO Initiates Bullish Coverage Of Oil Majors, BP Is Top Pick

BMO Initiates Bullish Coverage Of Oil Majors, BP Is Top Pick

After a difficult few years in the oil space, one Wall Street analyst said Wednesday it may finally be time for investors to step in and buy shares of oil majors.

The Analyst

BMO Capital Markets analyst Daniel Boyd initiated the following stock coverage on Wednesday:

  • BP plc (NYSE: BP), Outperform rating, $53 price target.
  • Chevron Corporation (NYSE: CVX), Outperform rating, $165 price target.
  • Exxon Mobil Corporation (NYSE: XOM), Market Perform rating, $86 price target.
  • Total SA (NYSE: TOT), Market Perform, $62 price target.
  • Royal Dutch Shell plc ADR Class A (NYSE: RDS-A) (NYSE: RDS-B), Market Perform, $65 price target.

The Thesis

Boyd said impressive cash flows and high dividend yields among top oil majors are appealing to long-term investors. He said focus within the industry has shifted from fear of peak supply to fear of peak oil demand.

There are three predominant themes pertaining to oil majors in today’s market, according to Boyd:

  • Today’s pipeline is lower-risk and more advantageous than in the past.
  • The business has gotten more efficient thanks to technology, a robust supply chain and operational optimization.
  • When it comes to free cash flow and cash returns, oil majors can now do at $60 per barrel what they used to at $100 per barrel.

“We expect the stocks to outperform in a range-bound oil price environment given that cash return at $60-65/bbl oil is poised to exceed periods of $100/bbl and FCF yields are attractive vs. the S&P-500,” Boyd wrote in a note.

BP is Boyd’s top oil major stock pick based on price target upside, and he said free cash flow has hit an inflection point. He is also bullish on Chevron, where he predicts Permian upside and sustainable 5% growth.

Price Action

Here is how the five stocks mentioned were trading on Wednesday morning:

  • Royal Dutch Shell was up 1.1%.
  • Total was up 1.6%.
  • Exxon was up 0.6%.
  • Chevron was up 1.2%.
  • BO was up 0.8%.

Related Links:

What The OPEC, OPEC+ Deal Means For Oil Investors

What To Expect From The S&P 500 Over The Next 20 Years

Latest Ratings for BP

Aug 2019Initiates Coverage OnOutperform
Jul 2019UpgradesHoldBuy
Jul 2019DowngradesOutperformNeutral

View More Analyst Ratings for BP
View the Latest Analyst Ratings

Posted-In: BMO Capital ManagementAnalyst Color Price Target Commodities Initiation Top Stories Markets Analyst Ratings Best of Benzinga


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