Research firm Piper Jaffray upgraded BP (BP) to Overweight from Neutral, saying that the company's free cash flow has reached a positive turning point and that the positive momentum of its free cash flow should continue for multiple years.

CASH FLOW: BP's "capital spending framework" is "transparent and reasonable," and its "headwinds" from the Gulf oil spill are "subsiding," wrote Piper analyst Guy Baber. So far this year, the company's free cash flow has come in 5%-10% above its target, Baber wrote. In the first half of the year, its annualized free cash flow, excluding Gulf oil spill costs and working capital, is close to the level it needs to cover both its capital expenditures and its dividend, Baber stated. The momentum of BP's cash flow is "compelling," the analyst believes. He explained that the company's "cash costs" are declining, while its production from 2016-2021 is set to grow at a compound annual growth rate of 5% and it has taken steps to boost the cash flow and profitability of its downstream business.

PRICE TARGET: Baber raised his price target on the stock to $42 from $38.

PRICE ACTION: In morning trading, BP gained 0.7% to $36.62.