RBC Boosts BP to Outperform on Debt Cut Prospects with 31% Upside

RBC Capital Markets has bumped up its rating on BP from sector perform to outperform, holding firm on its 700p price target. The driving force? Elevated oil prices that offer BP a golden window to slash its debt to peer-level figures.

As of May 8, BP's London Stock Exchange shares were hovering at 535.90p, setting up a roughly 31% runway to RBC's target. The brokerage is keeping a range in mind, with a downside scenario of 440p and an optimistic stretch up to 840p.

"The current windfall presents a second chance for BP to de-leverage, and should help put the company on firmer footing for the coming years," the analysts noted. With RBC assuming Brent crude at $91 per barrel in 2026, it expects BP's net debt relative to cash flow from operations to tumble from 2.2 times in 2025 to less than one by 2026 - 0.9x - and further down to 0.5x in 2027.

These leverage ratios stack up favorably when lined up against European industry peers like TotalEnergies at 1.1x and U.S. giant ExxonMobil at 0.8x, both forecasted for 2027. Even under a more conservative case where Brent dips to $70 a barrel, leverage is still projected to firm up to a manageable 1.3x by 2027.

Standard & Poor's also chimed in this year by placing BP on a positive outlook as of April. RBC's take on BP's adjusted net debt, which factors in not only conventional liabilities but also leases, hybrids, and the lingering Macondo oil spill costs, stands at around $58 billion heading into 2026. By the close of that year, it's expected to fall to about $42 billion and shrink further to near $33 billion by 2027, even accounting for a modest $2.5 billion share buyback planned in 2027.

On the profit front, RBC raised its earnings per share (EPS) estimate for BP in 2026 slightly to $1.02 from $1.00 and nudged the 2027 projection to $0.84 from $0.80. These figures actually sit comfortably above consensus estimates, by 13% and 21% respectively.

Free cash flow to enterprise value (FCF/EV) is forecast to hit 12.9% in 2026, which outpaces peer groups significantly-Euro peers average 8.2%, while the global average clocks in at 8.0%. This points to strong cash generation capability relative to BP's valuation.

Of course, risks linger. RBC highlighted a few: the possibility that oil prices won't stay elevated as long as expected; complications from renegotiating BP's previously announced $6 billion Castrol sale to Stonepeak; potential setbacks from exploration efforts like the Bumerangue well in Brazil; and premature resumption of share buybacks before zeroing out net debt-an urge they dubbed "FOMO." Even if reported net debt hits zero by BP's accounting, lingering exposures remain through leases, hybrids, and Macondo-related liabilities.

Looking at valuation multiples, BP's enterprise value to debt-adjusted cash flow (EV/DACF) multiple stands at 3.5x for 2026 forecasts, undercutting European peers at 4.8x. Dividend yields of 4.7% projected for 2026, growing to 5.1% by 2028, paint a picture of steady income potential. RBC's price target balances a sum-of-the-parts approach with normalized multiples, valuing BP's shares between these benchmarks.