Morgan Stanley upgrades BP stock to Equalweight on Castrol sale prospects

Investing.com - Morgan Stanley upgraded BP (NYSE:BP) from Underweight to Equalweight on Wednesday, raising its price target to $32.40 from $28.10. The stock, currently trading near its 52-week high of $35.55, shows strong momentum with a 24.5% year-to-date return. According to InvestingPro analysis, BP appears undervalued based on its Fair Value calculation.

The upgrade reflects Morgan Stanley’s updated outlook following BP’s progress on the proposed sale of its Castrol subsidiary, which the firm now explicitly models as an $8 billion cash inflow expected in mid-2026.

Morgan Stanley notes that while its previous concerns about BP’s high balance sheet gearing, low adjusted free cash flow yield, and disappointing quarterly earnings over the past two years remain valid, the potential Castrol transaction improves the outlook for the company’s net debt position.

The research firm’s analysis suggests the Castrol sale would put BP’s share buyback program "on a better footing," with their updated base case estimating BP can "just about" maintain its buyback program.

Morgan Stanley cautions that BP’s ability to sustain its buyback program would still "depend heavily on oil & gas prices and the pace of asset sales," despite the positive impact of the anticipated Castrol transaction.

In other recent news, BP PLC reported robust second-quarter earnings for 2025, significantly surpassing analyst expectations. The company’s earnings per share reached $0.90, compared to the forecasted $0.67, marking a 34.33% surprise increase. Revenue also exceeded predictions, totaling $46.63 billion against the expected $42.18 billion, a 10.55% surprise. Additionally, BP’s Whiting refinery in Indiana has begun the restart process after operational disruptions due to flooding. The refinery, which handles 440,000 barrels per day, aims to return to full production by early next week.

In terms of stock ratings, Melius Research initiated coverage on BP with a Buy rating and set a price target of $66.00. This decision aligns with BP’s renewed focus on oil and gas. Furthermore, Scotiabank upgraded BP’s stock rating to Sector Outperform, raising its price target to $42.00. The upgrade follows BP’s Bumerangue discovery, which Scotiabank believes will positively impact BP’s upstream portfolio. These developments reflect BP’s ongoing strategic shifts and operational milestones.

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