BofA Warns BP Stock Faces Downside Risk Despite $6 Billion Castrol Sale
Bank of America, widely known in financial markets as BofA, has issued a cautious warning on BP’s outlook even after the energy giant secured approximately $6 billion from the sale of a majority stake in its Castrol lubricants business. Recent analyst commentary suggests that investors should remain careful, as the company’s stock may still face downside pressure in the stock market.
BP’s partial sale of Castrol is one of the biggest moves in its ongoing strategy to streamline operations and reduce debt. Yet Bank of America’s analysis highlights concerns about future cash flows, earnings quality and asset valuation that could weigh on the company’s share price over time. This comes even as BP works to improve its balance sheet amid a challenging outlook for traditional energy firms.
Castrol Sale: A Major Asset Disposal
In late December 2025, BP confirmed it has agreed to sell a 65 percent stake in its Castrol lubricants business to infrastructure investor Stonepeak, valuing the unit at about $10 billion on an enterprise basis, the transaction is expected to generate roughly $6 billion in net proceeds for BP, which includes accelerated dividend income from the remaining stake and is earmarked entirely to pay down net debt.
The deal forms part of BP’s broader $20 billion disposal program designed to reduce debt and streamline operations, with total divestments completed or announced reaching about $11 billion, putting the company more than halfway toward its target.
While the sale brings much-needed cash, BofA analysts express concern that this move may not be enough to lift BP’s stock significantly higher, noting that the proceeds could be seen more as defensive financial management rather than a catalyst for future growth.
BofA’s View on Stock Risk and Cash Flow Quality
According to BofA’s review, the Castrol sale, despite its headline value, could leave BP’s share price with over 10 percent downside potential relative to the bank’s unchanged price target, reflecting a cautious stance on future earnings and value creation potential.
The bank pointed out that Castrol’s implied valuation is close to BP’s internal net present value expectation, suggesting limited upside from the deal itself. Analysts also believe that the sale may dilute the quality of BP’s future free cash flow because Castrol has historically been a stable and cash-generative asset with relatively low volatility.
BofA further adjusted its earnings forecasts for BP, reducing projected earnings per share for 2027 and beyond by approximately 5 percent due to changes in long-term cash flow expectations after the sale, and it also raised the company’s breakeven oil price by about $3 per barrel. This means BP may need higher oil prices than before to sustain profit margins and shareholder returns.
Debt, Gearing and Dividend Considerations
BP has been under pressure to shed assets and reduce net debt, which stood at around $26 billion after the third quarter of 2025. Proceeds from the Castrol sale will contribute to lowering this figure, but BofA notes that even after the transactions expected by the end of 2026. The company’s adjusted gearing ratio is likely to remain near 40 percent, signaling that significant leverage still exists on the balance sheet.
High leverage can impose constraints on future investment strategies and dividend growth, and BofA suggests that selling long-lived assets like Castrol for near current value may weaken the quality of BP’s remaining cash flows, potentially affecting dividend sustainability and investor confidence.
Implications for BP’s Stock Valuation
Despite BofA’s warning, investors should consider the broader context of BP’s valuation and strategy. The company’s shares had been supported in recent months by hopes of improved oil market fundamentals and strategic clarity, which helped temper volatility in energy shares. Yet, according to BofA’s analysis, the potential downside risk underscores the importance of conservative positioning for those focused on risk-adjusted returns.
From a stock research perspective, BP’s share price may continue to fluctuate due to macroeconomic factors such as oil prices, global demand patterns and geopolitical developments influencing energy markets. Any investor evaluating BP as part of a diversified portfolio should weigh the competing impacts of debt reduction, asset quality changes, and long-term industry trends like the energy transition.
Market Reaction and Peer Comparison
Other analysts have offered mixed views on BP’s asset sales strategy. Some argue that reducing debt and simplifying operations could strengthen the company’s core energy business, while others, like BofA, emphasize the risk of shrinking free cash flow and long-term earnings power. The divergence in analyst opinion highlights the complex trade-offs between short-term financial fixes and long-term strategic positioning.
In comparison to other energy and AI stocks that have seen strong momentum due to innovation narratives and growth potential, traditional energy stocks like BP face a different set of challenges, particularly in balancing legacy cash flow strength with future growth prospects. The relative performance of oil majors versus technology and growth sectors continues to draw attention from both institutional and retail investors.
For investors who track the stock market more broadly, BP’s situation serves as a case study in how asset sales, debt management, and industry conditions can influence valuation and risk outlook.
Looking Ahead
As the Castrol transaction moves toward expected completion by the end of 2026, subject to regulatory approvals, BP’s strategy and financial performance metrics will remain in focus. Long-term investors will be watching not just debt levels and asset sales, but also how the company reinvests in core operations, manages dividends, and adapts to energy market shifts.
BofA’s cautionary stance highlights the need for careful evaluation of both quantitative metrics like cash flow and qualitative factors, such as strategic adaptability in uncertain markets. For those engaged in long-term stock research, staying informed about evolving industry dynamics and corporate actions will be key to understanding how BP’s future develops.
FAQs
Bank of America warned that, despite receiving about $6 billion from the Castrol sale, BP’s share price may face more than 10 percent downside due to concerns about diluted cash flow quality and earnings forecasts.
The sale of a 65 percent stake in Castrol is expected to bring net proceeds of about $6 billion, all of which BP plans to use to reduce net debt under its broader divestment program.
Analysts believe that selling a stable, low-volatility asset like Castrol could reduce the overall quality of BP’s free cash flow, potentially making future earnings and dividends less predictable.
Disclaimer:
The content shared by Meyka AI PTY LTD is solely for research and informational purposes. Meyka is not a financial advisory service, and the information provided should not be considered investment or trading advice.
