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How Analysts Rate Shell

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Analyst ratings for Shell

In the preceding part, we saw that YPF (YPF) has the highest number of “buy” ratings among global integrated energy stocks. Now, let’s look at the analyst ratings for Royal Dutch Shell (RDS.A), analysts’ second-best pick.

Shell is a British-Dutch integrated energy company. It has upstream, downstream, and integrated gas business segments. The company also has the second-largest market cap, at around $262 billion, among the top ten stocks we’re reviewing.

A total of 11 Wall Street analysts cover Shell. As the chart above shows, nine analysts rated Shell a “buy” in December 2017. The remaining two analysts rated it a “hold.” YPF (YPF) and Suncor Energy (SU) have also received more than 70% “buy” ratings from analysts. YPF and SU have received 92% and 71% “buy” ratings, respectively. We’ll discuss SU in the following part.

Shell’s implied gain

Shell’s mean price target has risen 16% over December 2016 to $70 per share in December 2017. Shell’s mean target price implies around an 11% gain from the current level. The potential gains have diminished due to a steep rise of 20% in Shell stock compared to a rise of 16% in its mean target price in the stated period.

Shell stock has also risen since October 2, 2017, by 5%. This could be due to an aggregate impact of the rise in oil prices in the quarter and Shell’s 3Q17 earnings, which surpassed analyst estimates. Along with providing returns in terms of price appreciation, Shell’s stock also provides a higher dividend yield. The company’s current dividend yield stands at 5.9%. Also, the company has canceled its scrip dividend program and announced buybacks from 2017 through 2020 in an attempt to offset the dilution due to the BG Group acquisition and scrip dividend program.

Valuations

Shell trades at a forward PE of 15.4x, below the average forward PE of the ten integrated energy stocks being discussed in this series of 23.8x. Shell also trades at 5.9x its forward EV-to-EBITDA, below the peer average of 6.1x. Shell acquired BG Group in 2016, which resulted in debt at a time when oil prices were at their multiyear lows.

However, now oil prices have recovered. Plus, benefits and synergies from the BG acquisition have started pouring in. Also, after the recent earnings, it was evident that Shell’s leverage and liquidity positions have started improving.

In the next part, we’ll discuss analyst ratings for Suncor.

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