Where Do Shell’s Forward Valuations Stand Compared to Its Peers’?



Shell’s forward valuations: A peer comparison

Earlier, we discussed Royal Dutch Shell’s (RDS.A) historical valuations. Now, let’s consider Shell’s forward valuations compared to those of its peers.

Shell is trading at a two-year forward PE (price-to-earnings ratio) of 12x, below the peer average of 15.6x. Shell’s peers BP (BP), Total (TOT), and YPF (YPF) are also trading below the peer average. ExxonMobil (XOM), Chevron (CVX), Suncor (SU), and ENI (E) are trading above the peer average.

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Shell is currently trading at a forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) ratio of 4.4x, lower than the peer average of 5.4x. This suggests a higher level of EBITDA for Shell, pushing its two-year forward EV-to-EBITDA below the peer average. BP, YPF, and ENI are also trading below the peer average.

Why is Shell trading at a discount to XOM and CVX?

Shell may be trading at a discount to XOM and CVX due to the fact that they seem better-placed in terms of capital structure. Shell is trading at a total debt-to-capital ratio of 26% compared to XOM and CVX, which are trading at 18% and 20%, respectively. The steep reduction in Shell’s cash levels and the rise in its leverage due to its BG Group acquisition are likely weighing down the stock compared to its peers.

If you’re looking for a portfolio comprising large-capitalization stocks, you can consider the PowerShares Dynamic Large Cap Value ETF (PWV). The ETF has ~11% exposure to energy sector stocks, including Chevron.


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