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 BP, Outperform rating, $53 price target.
• Chevron Corporation CVX, Outperform rating, $165 price target.
• Exxon Mobil Corporation XOM, Market Perform rating, $86 price target.
• Total SA 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%.

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