Morgan Stanley lifts targets on E&P stocks as oil prices surge

Investing.com -- Morgan Stanley (NYSE:MS) has increased its price targets on several European exploration and production (E&P) companies following a sharp rise in Brent crude prices, citing stronger investor interest in oil-exposed firms without assets in the Middle East.

According to analysts a near 12% rise in Brent prices in recent days has led to a 7–11% rally in share prices across select E&P names. 

The brokerage notes further upside potential for Var Energi and Harbour Energy, driven by high free cash flow yields (FCFY) and visible distribution plans.

Var Energi’s price target was raised from NKr 35.30 to NKr 38.20. Morgan Stanley projects FCFY of about 19% annually over 2025–2026 and a sustainable 14% dividend yield, underpinned by the start-up of the Balder X project. Under spot Brent prices of about $72.50/bbl, FCFY could rise to ~25% for 2025.

Harbour Energy’s target increased from 250p to 276p. The company is forecast to deliver about 17% FCFY over 2025–2026, complemented by about a 9% dividend yield and a planned 5% annual buyback program beginning in 2H25. Under current oil prices, 2025 FCFY could reach ~20%.

In contrast, Aker BP (NYSE:BP) remains rated "underweight." Although the stock rose about 11% recently, Morgan Stanley sees limited upside, with the share price already discounting around $75/bbl long-term Brent price. 

The brokerage forecasts a 2025–2026 FCFY of about 2%, improving to roughly 5% at current spot prices. Its price target was raised from NKr 200.00 to NKr 232.00, implying about 15% downside.

Ithaca Energy (LON:ITH) was assigned a new target of 157p, up from 141p, with a projected FCFY of 24% in 2025 and 17% in 2026. The dividend yield is expected to remain at 14%.

Energean’s price target was cut to 930p from 1,080p due to production suspension at the Karish field in Israel and elevated geopolitical risk.

Morgan Stanley increased its assumed cost of capital to 15% and lowered 2025 production estimates by about 5 kboe/d.

While the brokerage outlines three scenarios for oil, ranging from $60/bbl to $120/bbl, Morgan Stanley maintains a base case of $60/bbl, citing ongoing geopolitical volatility and uncertainty around supply disruptions.

The analysts suggest that even with a majority probability assigned to the base case, elevated oil prices justify wider risk premiums.