TOTAL S.A.’s (TOT: 48.35 -0.23 -0.47%) weak near- to medium-term production outlook and the risks related to the present constrained commodity environment have led us to downgrade the long-term recommendation for the stock to Underperform from Neutral with a target of $42.00.In the near term, oil prices are expected to remain weak due to moderation of global oil demand in general and China in particular. All this will bring down production and affect refining margins, leading to poor financial performance by the company.
We are also concerned about the company’s high level of capital spending, which may result in reduced returns going forward.
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