Bank of America believes that Europe’s oil majors are on the brink of a turning point, according to analysts at the Wall Street bank. Despite a decline in oil and European gas refining margins, as well as consensus downgrades for 2023, the share prices of most Big Oil firms have increased. This reflects investor anticipation for an upcoming improvement in earnings momentum.
In a research note titled “Europe’s Big Oils are close to bottoming out,” Bank of America analysts led by Christopher Kuplent stated that they believe consensus estimates for European Big Oil firms have been re-set and do not anticipate further downside to second-quarter 2023 earnings expectations.
Although some disparity exists among the companies, Bank of America named Shell as its top pick. The bank expects Shell to report strong second-quarter earnings and cash flows due to its reduction in capital expenditure, financial discipline, and resilience in its cash flow framework. Bank of America predicts that Shell’s third-quarter buyback guidance will exceed the $2.5 billion floor and the consensus expectations of around $3 billion. Shell’s stock has risen 3% this year and is projected to increase by 31% over the next 12 months.
On the other hand, BofA analysts expressed a less optimistic outlook for BP. Despite impressive share buybacks and dividend guidance in its fourth-quarter results last year, BP has faced several challenges. According to analysts, unfavorable working capital outflows during the first quarter have put pressure on BP, impacting its ability to maintain a flexible approach and potentially forcing the company to reconsider its shareholder distribution policy. BofA expects BP’s stock to rise by 16% over the next 12 months.
For TotalEnergies, Bank of America forecasts adjusted operating income of $7.7 billion for the second quarter, lower than the consensus of $7.9 billion. The bank also expects adjusted net income to be $5.4 billion, a 20% drop from the previous quarter. Bank of America believes TotalEnergies’ stock, which has declined 8% year to date, will rebound by 44% over the next 12 months.
Bank of America also highlighted Equinor, a Norwegian state-owned firm, and stated that although there may be some downside to its earnings consensus, the forecasts underestimate working capital inflows. The analysts believe that an increase in inflows could have a positive impact on free cash flow coverage and potentially drive up stock prices. Equinor’s stock has fallen 12% this year but is expected to rise 17.5% over the next 12 months.
Overall, Bank of America analysts expect a positive inflection point for Europe’s oil majors, with some companies expected to fare better than others.
