On Thursday, Piper Sandler adjusted its outlook on BP (NYSE:NYSE:BP), increasing the price target to $40 from $38 while maintaining a Neutral rating on the stock. The firm highlighted the oil sector's unusual position of experiencing both volume and cash flow growth, noting significant developments in the fourth quarter of 2023.
BP, along with other international oil companies (IOCs), has seen average volume growth of around 3.5% year-over-year. Piper Sandler projects that through 2028, the average annual cash flow from operations (CFO) growth could be approximately 4.5% per year. The firm anticipates that U.S. oil companies might outpace their European counterparts, with an estimated growth rate of about 6.2% per year compared to 3.7% for European companies.
The revised price target for BP's shares is derived from a balanced weighting method. Piper Sandler based its analysis on a 50/50 split between a free cash flow (FCF) yield target relative to the FTSE 100 and a projected fiscal year 2024 EBITDA multiple. The FCF yield target is based on the projected full-year 2024 FCF at a PSC Oil Price of $80 per barrel of Brent crude oil.
Furthermore, the EBITDA multiple target has been adjusted to 4.75 times, up from the prior 3.75 times. This revision also includes a discount rate to Exxon Mobil (NYSE:XOM), which has been reduced to 2.25 times from the earlier 2.5 times.
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