Citi said its downgrading was a realistic and positive development for the company and its investors.
"We think the market now better reflects the inherent value in BP," Citi analysts said this week.
"A good news story around a self-help agenda, narrowing Russian discount rates and a favourable Macondo Phase II ruling have all driven the equity story in recent months.
"Although these elements may continue to play out, we think they need to be balanced against the risks; specifically on narrowing growth optionality and on Macondo where we think the recent decision to put Alabama OPA under jury trial now creates more uncertainty.
"We downgrade from Buy to Neutral, with an unchanged price target (455p/share)."
Independent analyst Dave Dierking, who has been trading and investing for over 20 years, says BP has been raising cash and divesting itself of non-core assets to give it flexibility in light of uncertain litigation costs.
"The possibility of an Exxon Mobil-BP merger seems unlikely," he said on investment blog Seeking Alpha.
"This seems to be the rumour that won't go away. The merger of Royal Dutch Shell with BG group set off a discussion that we may begin seeing some consolidation in the oil sector as big energy firms begin scooping up small companies while their values are at lows.
"With that came the rumour that BP may be in play for ExxonMobil.
"I simply don't see it happening. Not soon, anyway.
"I think Exxon Mobil would want to stay away from BP until the Gulf spill litigation comes to a close, and even then I'm not sure a merger would happen despite the cost savings that could be generated with such a move. I could see Exxon making a purchase, but I just don't think BP is the match."
BP's 2010 Deepwater Horizon incident continues to haunt the supermajor, with details of the $US18 billion ($A23.67 billion) ruling against BP for the Gulf spill and the potential for further fines well-documented.
Dierking said this uncertainty, coupled with falling energy prices, limited BP's stock's upside as the total return on BP since the start of 2010 had been -13%, compared to a 106% total return on the S&P 500.
"Since BP has appealed, a final result may still be a way off and the litigation black cloud may hang over the company for a while, but it's a scenario that BP seems prepared for," he said.
"A near $30 billion cash position means that BP has the resources to cover any litigation expenses - assuming there are no further damaging rulings against the company - without dipping into the debt market."