I was planning to rebalance a few stocks in my portfolio this week and was happy to see a bullish rating on the BP (LSE: BP.) share price from RBC Capital. Analyst Biraj Borkhataria outlined why he feels the stock is significantly undervalued – a view I share.
According to reports, he reiterated his Buy rating on the stock earlier this month (1 July 2026) with a price target of 700p. That would equate to a spectacular 47% gain from today’s level around 475p.
It’s an optimistic outlook, and one I certainly hope comes true — but is it realistic?
Let’s take a look.
A bullish thesis
RBC’s thesis rests on a model of $91 per barrel for Brent Crude in 2026, supporting BP’s cash generation and earnings.
If that happens, BP could bring its net debt-to-cash flow from operations (CFFO) down from 2.2 times to 0.5 times by 2027. That would put it in a better financial position than peers like Exxon and TotalEnergies.
Even at just $70 a barrel, its leverage could drop to just 1.3 times — still in a comfortable range to support a higher valuation.
It already looks cheap compared to competitors, so any debt reduction would ramp up its attraction to investors. So long as cash flow continues to support dividends, it should maintain both value and income appeal.
Currently, its yield hovers around 5.3%, putting it well ahead of key rival Shell and in the top 15 yielders on the FTSE 100.
What’s the catch?
While BP’s current low price point looks attractive, a recovery is in no way guaranteed. In its analysis, RBC outlined four key risks that could turn that 700p target into a pipe dream:
- A shorter period of elevated oil prices than expected.
- Problems with the Castrol sale to Stonepeak (originally expected to net $6bn).
- Disappointing results from the Bumerangue exploration well in Brazil.
- Management resuming buybacks too early before completing deleveraging.
Essentially, any sustained drop in oil prices would derail the plan. And even if they do climb, BP won’t necessarily slash its debt aggressively.
Fortunately, the shares are still attractive for dividend payments alone. Even if the price doesn’t move at all, any shares held for the next 12 months should deliver a 5% return.
That alone makes the stock worth considering in my book.
So where does this leave us?
I like BP’s prospects but it’s no longer a reliable, steady income play. Any recovery relies on oil prices climbing, management executing on debt reduction, and key deals closing without hiccups.
Within an adequately diversified portfolio, I view it as an income-booster with energy exposure — rather than a foundational holding.
The 5% yield offers decent enough returns while waiting for a recovery, but don’t bank on 700p unless you’re comfortable with the risks. Considering the macro backdrop, a cautious approach seems smart.
The key is to keep a close eye on oil prices and any internal friction at BP that could derail this forecast. For now, I’ll hold my position and see how things pan out — but I feel optimistic about the stock.
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Mark Hartley owns shares in BP.
