Analysts’ ratings for integrated energy companies
Let’s review Wall Street analysts’ opinions on Royal Dutch Shell (RDS.A) and BP (BP) after their first-quarter earnings results.
Eleven Wall Street analysts have rated both Shell and BP. Of these analysts, 82% and 55% have rated Shell and BP as “buys” or “strong buys,” respectively.
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Shell has the most “buy” ratings
Shell’s first-quarter earnings fell marginally, but its fall was the lowest among its peers. Plus, Shell’s first-quarter earnings surpassed Wall Street analysts’ estimate. The company’s Upstream, Integrated Gas, and Downstream earnings rose despite lower oil prices, narrower refining margins, and weaker chemical margins.
The rise in its earnings was the result of the strength of the integrated earnings model built by the company over the years. Shell has restructured its assets across segments to retain only its most competitive assets.
It’s no surprise that analysts hold favorable opinions on the stock.
Shell’s mean target price is $80 per share, which implies a 24% gain from its current level—the highest implied gain compared to its peers ExxonMobil (XOM), Chevron (CVX), and BP (BP). ExxonMobil and BP have implied gains of 10% and 16%, respectively, whereas Chevron’s implied gains stand at 20%.
BP has mixed ratings
BP aims at being competitive at all points in the oil price cycle. To this end, BP has a strategy in place made up of cost cutting, capex optimization, and the sale of noncore assets. BP plans to spend $15 billion–$17 billion in capex from 2019 to 2021. The company also aims to divest more than $10 billion worth of assets in the next two years. It also expects its oil spill charges to stand at ~$2 billion in 2019.
Further, BP has a robust Upstream project pipeline. The company expects its production to increase by 900,000 barrels of oil equivalent per day by 2021. If oil prices improve, then with increasing production, BP could see higher Upstream earnings, and analysts’ ratings could strengthen as its earnings rise and its financials improve.
BP’s mean target price of $50 implies a potential upside of 16% from its current level.