(MENAFN - ProactiveInvestors - UK) Oil giant BP (LON:BP) could see a share price revival if it can make progress on US Macondo-related fines, according to Canaccord Genuity.
The stock has returned to levels seen in the aftermath of the Macondo oil spill. But Canaccord analysts think the recent weakness "leaves valuations discounting very little upturn in BP fortunes".
The broker has upgraded the company to 'buy' from 'hold' but has reduced its target price by 30 pence to 485 pence to factor in longer-term growth concerns.
The FTSE 100 heavyweight owes billions of dollars in fines and compensation for the Deepwater Horizon oil spill in the Gulf of Mexico in 2010, which killed 11 workers and leaked millions of barrels of crude oil into the water.
The company has been forced to sell off assets since to cover the costs.
And Canaccord sees the settlement of the fines and further sales as catalysts for a share price recovery in the future.
While the broker is not convinced about the scope for longer-term growth at BP, it predicts a "strong recovery" over the next couple of years.
The broker said: "We think current sentiment leaves room for good upside in the case of material progress on issues such as a US settlement over fines, or further disposals."
"BP still has the uncertainty over Macondo, but we think this is an attractive valuation for a European oil stock with limited Eurozone exposure."
The broker now sees more value in the sector given its underperformance so far this year.
It added that with Brent Crude Oil prices falling back below US110 per barrel, it is more comfortable on the downside risks.
Although the broker expects exploration and production results to weaken in the short-term due to high summer maintenance, this is now well flagged in the price.
Analysts are highlighting the fourth quarter of this year as a potential starting point for "a more visible upstream recovery".
However, the broker was less optimistic longer-term.
"We think the longer-term outlook is one of limited volume growth (sub-1 per cent pa) and much higher capex, albeit with good potential for exploration catalysts.
"While this makes us somewhat cautious on the shares' long-term prospects, we think they could perform well on a 6-12 month view," the broker concluded.
Shares sank 6.3 pence, or 1.8 per cent, today to stand at 395.7 pence.