UBS analysts believe now is the time to invest in BP PLC (LSE:BP.), highlighting the stock's undervalued position and potential for recovery.
A 19% year-to-date decline, far steeper than Shell’s 3% drop or Chevron’s 6% gain, suggests the stock may be oversold and the Swiss bank sees BP's February strategy update as a pivotal moment to address investor concerns and reset its trajectory.
The UK oil super-major has faced challenges, including disappointing trading performance, unplanned outages, and slower-than-expected growth from its low-carbon initiatives.
However, UBS emphasised that the company trades close to its replacement cost, presenting an opportunity for upside. The firm maintains a 'buy' rating and has set a price target of 525 pence.
UBS expects BP to outline a leaner capital expenditure strategy, with potential reductions of $2 billion annually from 2025 to 2030.
This would come through deferring low-carbon projects while modestly increasing spending in core oil and gas operations. The strategy, UBS argues, could improve BP’s balance sheet while maintaining its focus on returns.
Additionally, UBS sees potential for enhanced cost savings, citing BP's operating expenses, which are comparable to Shell’s despite a significantly smaller asset base. With a $2 billion cost-cutting goal by 2026, UBS believes BP can outperform peers if it executes on these efficiencies.
While BP’s challenges persist, UBS views the current share price as an attractive entry point for long-term investors, driven by opportunities to refocus on operational efficiency and value creation.
The shares were range-bound a 380.4p.