JPMorgan Upgrades BP to Overweight, Downgrades TotalEnergies on Valuation Shift

JPMorgan has upgraded BP plc to Overweight from Neutral and downgraded TotalEnergies SE to Neutral from Overweight, reshuffling its ratings for European oil majors amid rising commodity price volatility and a re-evaluation of company valuations.

The Ratings Change

In a research note, analyst Matthew Lofting raised BP's price target to 675 pence from a previous 550 pence. The downgrade of TotalEnergies was positioned as the "source of funds" for the BP upgrade, reflecting a relative value shift rather than a fundamental issue with the French company.

The bank's revised list of Overweight-rated names in the European energy sector now consists of Shell, BP, Eni, and Galp. This comes after the sector has seen a +20% absolute performance in U.S. dollar terms since the beginning of the recent Middle East conflict, according to the note.

Rationale for BP Upgrade

JPMorgan's increased optimism for BP is based on a combination of macroeconomic tailwinds and internal restructuring, which it believes creates "a major opportunity" for the company to improve its fundamentals through 2028. While acknowledging BP's "chequered" recent history, the bank sees a clear path to improvement.

Key financial projections supporting the upgrade include:

• An expected inflection in deleveraging beginning in the second half of 2026.
• A 2027 free cash flow (FCF) yield estimate of 11% based on a $75 per barrel Brent price.
• The highest sensitivity to refining margins among its European large-cap peers, which is advantageous while margins remain elevated.

Ad

TotalEnergies Downgrade Explained

The downgrade of TotalEnergies was not driven by specific concerns over its upcoming Investor Day or long-term fundamentals, which JPMorgan stated "remain well placed." Instead, the bank suggested the company's "industrial strength is somewhat priced in," noting its 2027 FCF yield estimate of 9.0% is at a premium to its U.K. peers.

Lofting flagged three primary considerations behind the downgrade:

• Higher direct asset exposure to the Middle East amid ongoing regional risks.
• A moderation in underlying exploration and production (E&P) volume growth.
• Potential political risks in France, including renewed debate over energy windfall taxes.

Broader Sector Outlook

Across the sector, JPMorgan noted that if oil prices were to remain near $100 per barrel and refining margins stayed at historically high levels, forward free cash flow yields could potentially reach 20% or higher. However, the bank also cautioned that the risk of new European windfall taxes remains an "unpredictable but closely watched offsetting factor" for investors.