No recommendation
No news or research item is a personal recommendation to deal. Hargreaves Lansdown may not share ShareCast's (powered by Digital Look) views.
(Sharecast News) - Morgan Stanley has downgraded BP and reiterated its 'overweight' rating for rival Shell, in a note assessing European the energy sector.
The Wall Street bank argued that the sector's fortunes "remain closely tied to oil markets, which we expect to enter a meaningful surplus after the summer.
"We foresee downside risk to earnings and buybacks, upside risk to net debt and do not find valuations compelling."
Shell remains the sector's top pick, followed by TotalEnergies, which Morgan Stanley upgraded to 'overweight' from 'equal weight'.
But BP was trimmed to 'underweight' from 'equal weight'.
Morgan Stanley said: "BP laid out an ambitious plan with major cost savings, capex cuts, disposal plans and a shift back to oil and gas.
"However, that was only part of the issue. More confidence on earnings delivery and an improved balance sheet takes time, and is contingent on execution of the current plan, which is a more difficult task to deliver amid lower oil prices."
It concluded: "We see a combination of elevated gearings versus peers; larger downside risk to consensus expectations than peers; and a premium valuation.
"Altogether that does not screen as particularly compelling to us in the context of lower oil prices and a preference for defensive stores, and we downgrade the stock."
As at 1330 BST, BP was up 3% at 384.1p, while Shell was 2% higher at 2,516p.
The value of investments can go down in value as well as up, so you could get back less than you invest. It is therefore important that you understand the risks and commitments. This website is not personal advice based on your circumstances. So you can make informed decisions for yourself we aim to provide you with the best information, best service and best prices. If you are unsure about the suitability of an investment please contact us for advice.