BP.: Future Returns Will Reflect Portfolio Pruning And Execution Risks Amid Sector Uncertainty

We raise our BP price target modestly, reflecting analysts' series of upward revisions to both U.S. dollar targets toward $40 and U.K. listings toward the 520 to 525 GBp range, supported by a view that BP's strategic reset, portfolio pruning, and persistent valuation discount improve the risk and reward profile for the shares.

Analyst Commentary

Street research has turned incrementally more constructive on BP, with a series of target price increases in both U.S. dollar and sterling terms reflecting improved confidence in the company’s strategic reset, portfolio actions, and capital return potential. At the same time, some analysts remain cautious, highlighting leverage and macro exposure that could constrain upside if execution falls short.

Bullish Takeaways

Bullish analysts point to BP’s strategy reset and portfolio pruning as catalysts that can unlock value, arguing that a more focused asset base should support higher returns on capital over time.
Several recent target increases in both dollars and GBp are framed around the view that BP’s valuation discount to global integrated peers is excessive and can narrow as execution improves.
Research notes emphasize that divestment of non core assets and reprioritization of value over volume could strengthen free cash flow visibility, underpinning dividend sustainability and buybacks.
Coverage initiations and upgrades highlight that broad sector pessimism on energy has created an opportunity for rerating, particularly if BP demonstrates consistent delivery against its updated plan.

Bearish Takeaways

Bearish analysts, including some who remain Neutral, stress that BP’s leverage is at the higher end of the sector, which could limit balance sheet flexibility if oil prices weaken.
Concerns remain that the company may struggle to reduce leverage quickly in a softer macro environment, potentially delaying any meaningful rerating of the equity.
Some commentary questions whether the current valuation discount is wide enough to fully compensate for execution risk, especially around delivering on strategic and financial targets.
JPMorgan and other more cautious voices retain mid range ratings, indicating that while upside exists, it is contingent on disciplined capital allocation and consistent operational delivery.

What's in the News

BP is in advanced talks to sell its Castrol lubricants unit to U.S. investment firm Stonepeak in a transaction that could raise about $8 billion and contribute meaningfully toward its $20 billion divestment program (Reuters)
BP publicly framed the potential Castrol sale as part of a broader $20 billion divestment and restructuring drive aimed at boosting profitability, cutting costs, and refocusing spending on oil and gas after reassessing its green energy ambitions
BP reported £1.7 billion in Q3 profits, ahead of £1.5 billion consensus, as activist investor Elliott Management presses the company to step up performance, accelerate cost cuts, raise shareholder payouts, and reduce debt
From July 1 to September 30, 2025, BP repurchased about 24.7 million shares for $138 million, completing 33.7 million shares or 0.22% of its stock under the buyback launched in May 2025
BP’s Q3 2025 operating update showed higher oil production and operations output offset by lower gas and low carbon energy volumes, with guidance indicating broadly flat upstream production in Q4 and slightly lower reported production for 2025 versus 2024

Valuation Changes

The Fair Value Estimate has edged down slightly, reflecting a modest reduction in our intrinsic value assessment for BP shares.
The Discount Rate has risen marginally, implying a slightly higher required return and a more conservative stance on BP’s risk profile.
Revenue Growth has increased fractionally, indicating a small uplift in long term top line growth expectations.
Net Profit Margin has fallen slightly, incorporating a modestly more cautious view on future profitability and cost efficiency.
The future P/E has ticked up modestly to just above 12x, suggesting a slightly higher valuation multiple applied to BP’s forward earnings.

Focused project execution, cost reduction, and technological innovation are set to enhance BP's margins and cash flow while positioning it for persistent global energy demand growth.
Strategic asset optimization and strong trading performance support stable, high-margin earnings and resilience amid sector and regulatory shifts.
Ongoing capital misallocation, portfolio complexity, and operational weaknesses threaten BP's progress on energy transition, efficiency gains, and long-term profitability.

Catalysts

About BP

An integrated energy company, provides carbon products and services.What are the underlying business or industry changes driving this perspective?

The ramp-up of major upstream projects, breakthrough exploration successes in Brazil, West Africa, and other regions, and an ongoing focus on high-return organic growth provide BP with the ability to capture persistent global energy demand growth-particularly from emerging markets-supporting visible revenue and earnings expansion.
An accelerated and data-driven structural cost reduction program, enhanced by the use of AI, digitization, and supply chain optimization, is expected to materially improve BP's operating margins and free cash flow, positioning the company to benefit from technological advancements that reward scaled, efficient industry players.
Portfolio high-grading and disciplined capital allocation-via active divestment of lower-quality or stranded assets and focus on best-in-class project returns-will streamline BP's asset base and support more stable, higher-margin earnings as carbon pricing and ESG pressures increase, consolidating the position of large incumbents.
Superior performance in integrated trading (oil, gas, LNG) and downstream operations, including leveraging increasingly tight commodity and product markets, allows BP to maximize margin capture amid ongoing sector underinvestment, providing resilient ancillary income streams and diversification from core production.
Sustained growth in U.S. upstream operations (including BPX Energy and Gulf of Mexico), combined with ongoing U.S. policy support and favorable tax frameworks, positions BP to tap into scalable, long-cycle projects with attractive capital returns, underpinning long-term improvements in profitability and cash generation.

BP Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming BP's revenue will decrease by 2.3% annually over the next 3 years.
Analysts assume that profit margins will increase from 0.3% today to 5.2% in 3 years time.
Analysts expect earnings to reach $8.9 billion (and earnings per share of $0.61) by about September 2028, up from $562.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $10.7 billion in earnings, and the most bearish expecting $6.5 billion.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.6x on those 2028 earnings, down from 157.9x today. This future PE is greater than the current PE for the GB Oil and Gas industry at 11.5x.
Analysts expect the number of shares outstanding to decline by 4.14% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 8.34%, as per the Simply Wall St company report.

BP Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

The recent impairments totaling $1.2 billion-including write-downs related to hydrogen, biofuels in Australia, and lingering issues in gas and low carbon-highlight continuing risks of capital misallocation and underperformance in new energy segments, which could negatively affect EPS and asset values.
BP's divestment and portfolio review process, including uncertainty around the Castrol disposal and potentially complex lease obligations tied to future large projects (like Bumerangue in Brazil), could lead to lumpy cash flows, increased financing needs, or mismatched capital allocation that risks constraining free cash flow and future earnings.
Tight diesel margins and underperformance in certain downstream segments (like TravelCenters of America) reveal areas of operational weakness and pricing pressure, which may dampen margin improvement targets if market conditions do not recover.
Structural cost reduction efforts are partly offset by growth in underlying organizational expenses (including inflation, increased production, and acquisitions), raising execution risk that headline savings may not fully translate into improved net margins or bottom-line growth, especially if inflation persists.
The heavy strategic focus and capex on upstream oil and gas development (ten major discoveries and multiple startups) may contradict long-term energy transition trends, exposing BP to long-term oil demand risks, evolving carbon regulations, technological obsolescence, and potentially stranded asset write-downs-threatening both top-line revenue and long-term profitability.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of £4.438 for BP based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £5.2, and the most bearish reporting a price target of just £3.82.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $172.2 billion, earnings will come to $8.9 billion, and it would be trading on a PE ratio of 11.6x, assuming you use a discount rate of 8.3%.
Given the current share price of £4.27, the analyst price target of £4.44 is 3.7% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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