Shell’s PEG ratio
The PEG (price-to-earnings-to-growth) examine a stock’s valuation after factoring in expected future growth rate. A PEG ratio that is less than 1.0 signifies an undervalued stock.
Royal Dutch Shell’s (RDS.A) PEG ratio stands at 0.35, below the peer average of 0.41. The peer average considers the average PEG of 11 global integrated energy companies.
Shell’s focus on integrated model
Shell’s growth is driven by its integrated business model, which focuses on optimization of its value chain from the Upstream segment to the Downstream segment.
Shell has consistently restructured its upstream assets to create a competitive portfolio. Shell sold or canceled non-core projects, and it has also taken up new upstream projects. Shell has a series of projects that are anticipated to commence in 2017–2018. Shell expects these projects to contribute significantly to its overall production growth.
Shell has a huge proved reserve base of 13.3 billion barrels of oil equivalent (or Bboe). This proved reserve base is expected to boost its Upstream portfolio for years to come.
Royal Dutch Shell (RDS.A) focuses on integrating its value chain, a crucial component of which is its Downstream segment. Downstream is actually a value-maximizing segment.
Along with its divestments, Shell also plans to modernize, upgrade, and expand its existing asset base. Shell appears set to build a robust downstream portfolio, capable of shielding it during the periods of a downturn in its upstream earnings.
PEG ratios of peers
ExxonMobil (XOM) and Total (TOT) are the only stocks trading above the average PEG ratio. The remaining stocks in its peer group trade below the average PEG ratio. XOM and TOT trade at 0.78 and 1.2 PEG ratios, respectively. Normally, the higher the PEG ratio is, the more expensive the stock could be after considering future growth.