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Bank of America believes Europe’s oil majors are about to hit an inflection point. The Wall Street bank said that despite a quarter-over-quarter decline in oil, European gas, refining margins, and an average of 2% more consensus downgrades for 2023, share prices for most Big Oil firms have increased. This trend reflects investor anticipation for a long-awaited turn in earnings momentum, according to analysts at Bank of America. “Across our European Big Oil coverage, we believe consensus estimates have been re-set – on average showing no more downside to our 2Q23 earnings expectations,” said BofA analysts led by Christopher Kuplent in a research note to clients on July 14. The note was entitled “Europe’s Big Oils are close to bottoming out.” However, analysts said a disparity exists between the companies, and investors are likely to reward some stocks more than others. It named Shell as its “Big Oil top pick.” The U.K.-headquartered company’s stock is traded on London , New York , and Amsterdam stock exchanges. The below table shows European Big Oil companies, the earnings release dates, and Bank of America’s 12-month price target and upside potential. Shell As its top pick, Bank of America expects Shell to report strong second-quarter earnings and cash flows. The bank believes Shell’s investment case stands out as the firm is reducing 2023-25 capital expenditure, demonstrating financial discipline, and showing above-average resilience in its cash flow framework. BofA predicts that Shell’s third-quarter buyback guidance will surpass its $2.5 billion floor and the consensus expectations are of approximately $3 billion. Shares of the company have risen 3% this year — one of the biggest among Big Oil stocks — and are expected to go up another 31% over the next 12 months. BP In contrast, BofA analysts painted a less promising picture for BP . They said despite impressing investors with a share buyback and dividend guidance surpassing expectations during its fourth-quarter results last year, BP has faced a number of challenges. Unfavorable working capital outflows during the first quarter have impacted BP’s ability to maintain a flexible approach, putting BP under more pressure to reconsider its shareholder distribution policy, according to the analysts. “As a result, we see net debt slightly increase – constraining BP’s shareholder distributions given credit rating upgrades remain pending,” the analysts said. Shares of BP are traded in London and New York . While the stock has been flat this year, BofA expects it to rise by 16% over the next 12 months. TotalEnergies Bank of America forecasts an adjusted operating income of $7.7 billion for TotalEnergies ‘ second-quarter earnings, well below the consensus of $7.9 billion. The bank also expects adjusted net income to be lower than consensus at $5.4 billion, a 20% drop from the previous quarter. TotalEnergies shares are traded in Paris and New York through the ticker TTE. The stock has declined by 8% year to date, but Bank of America believes it will rebound by 44% over the next 12 months. “We see cash outflows, dividends and buybacks well covered and expect TTE to extend its $2bn quarterly buyback run-rate into 2H23,” the analysts said. Equinor The Wall Street bank said that while Equinor , a Norwegian state-owned firm, faces some downside to its earnings consensus on cash flow expectations, the forecasts underestimate working capital inflows. The analysts said the beat on inflows could offer tailwinds to free cash flow coverage of dividends and buybacks, which could push up stock prices. Shares of Equinor are traded in Oslo and New York. The stock has fallen by 12% this year but is expected to reverse those losses by rising 17.5% over the next 12 months from current levels.
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