Source: Sharecast
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.