Why Shell Is among Analysts’ Top Three Integrated Energy Picks


May. 21 2019, Published 8:07 a.m. ET

Analyst ratings for Shell

Royal Dutch Shell (RDS.A) has the third-highest percentage of “buy” ratings among the six integrated energy stocks (ExxonMobil, Chevron, Shell, BP, Total, and Suncor) we’re looking at in this series.

Shell has the second-largest market cap of around $264 billion. The analyst rating graph above shows that 11 Wall Street analysts cover Shell, and nine (or 82%) of these analysts rate the stock a “buy.” Shell’s current mean target price of $80 indicates a 23% gain from the current level.

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Analysts top two picks, Total (TOT) and Suncor Energy (SU), have received 100% and 92% “buy” ratings, respectively. Analysts are positive on Total likely due to its expected upstream volumes growth. In Q1 2019, Total’s upstream production rose 9% YoY to record highs of 2.95 million barrels of oil equivalent per day (or MM boed). Further, most analysts hold a favorable opinion on Suncor led by its growing earnings and an expanding upstream portfolio. Suncor’s upstream production rose by 11% YoY to 0.76 MM boed in Q1 2019.

Why analysts love Shell

Most analysts seem to like Shell due to its strong growth prospects, robust earnings model, and strengthening financials. Shell is one of the few companies estimated to post a rise in earnings in the current year. Wall Street analysts expect Shell’s earnings to rise by 12% in 2019.

Shell’s first-quarter earnings fell marginally. However, the fall was the lowest compared to peers due to the strength of the integrated earnings model the company has built over the years. The company built this sound model via its strategy to lower costs, optimize capex, divest non-core assets, and deliver new projects.

Further, Shell’s first-quarter earnings exceeded Wall Street analysts’ estimate. Also, the company’s Integrated Gas, Upstream, and Downstream earnings grew despite weaker oil prices, narrower refining margins, and lower chemical margins. Peers Chevron, ExxonMobil, and BP’s adjusted upstream earnings fell year-over-year in the first quarter. The growth in Shell’s segmental earnings was led by higher natural gas and LNG prices and more refining trading activity. Shell’s total upstream production stood at 3.75 MM boed in Q1 2019.


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