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Investing.com -- Scotiabank said Thursday that it has upgraded BP to Sector Outperform from Sector Perform, citing the potential of the company’s Bumerangue Block discovery to reshape its upstream business.
The bank also raised its 12-month price target for the stock to $42 from $34, with shares closing at $34.31 on Tuesday.
In its note, Scotiabank said the discovery “could transform the company’s long-term upstream profile, addressing one of investors’ biggest concerns.”
Analysts believe the Bumerangue find has the potential to close BP’s valuation gap with European supermajor peers.
The firm outlined three key reasons for its more bullish stance. First, the Bumerangue Block could be a game changer for BP’s production outlook.
Second, ongoing cost reduction efforts “should accelerate in the coming quarters,” providing additional support to earnings. Finally, Scotiabank sees further upside from drilling and testing updates expected in 2026, which “should serve as catalysts to the shares.”
“Valuation remains attractive despite strong YTD performance,” the bank said, noting that BP’s shares have room to rerate higher.
The analysts also highlighted that their discounted cash flow assumptions for the Bumerangue project are now included in their valuation model.
While details of the discovery’s reserves and commercial viability remain subject to further appraisal, Scotiabank’s view is that the development could represent a structural shift for BP’s portfolio.
“We believe the shares will be able to substantially narrow the current valuation gap with its European Supermajor peers,” the note said.