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On Tuesday, Piper Sandler updated its view on Shell Plc (NYSE: SHEL), raising the price target to $80 from the previous $72, while keeping an Overweight rating on the company’s shares. The adjustment follows a comprehensive analysis of the first-quarter results within the integrated oils sector. According to InvestingPro data, Shell, with a market capitalization of $199.4 billion, appears undervalued based on its Fair Value analysis. The company maintains a "GOOD" overall financial health score, supported by strong cash flow metrics.
The firm’s commodity team has revised its 2025/2026 commodity price outlook, now expecting Brent crude to average $63 and $61 per barrel, respectively, a decrease from their prior estimates of $74 and $76 per barrel. Conversely, the mid-cycle natural gas price forecast was increased to $3.50 per million British thermal units (mmbtu), up from $3.25. Despite market volatility, Shell has demonstrated resilience with a robust EBITDA of $51.27 billion in the last twelve months and an impressive free cash flow yield of 16%.
Despite the lower commodity price outlook, analysts at Piper Sandler believe that integrated oil companies (IOCs), due to their robust balance sheets, visible growth, and resource depth, will sustain momentum even through potential market weaknesses. Additionally, refining tailwinds may provide some compensation, though the focus for investors may shift towards the sustainability of shareholder distributions under these conditions. The firm’s assessment suggests that, at $55 and $65 per barrel of Brent crude, the IOCs’ cash flow from operations (CFO) would only cover 25% and 59% of their current share buyback pace, respectively.
Shell stood out among its peers in the first quarter, being the only company in Piper Sandler’s coverage to fully fund capital expenditures, dividends, and buybacks through its CFO, with approximately $2 billion to spare. InvestingPro analysis reveals that management has been aggressively buying back shares, while maintaining dividend payments for 21 consecutive years with a current yield of 4.31%. While acknowledging the broader debate over the extent to which IOCs should rely on their balance sheets to maintain share buyback levels, Piper Sandler views Shell as the top pick in the sector. The firm notes that except for BP (NYSE:BP), which is still grappling with balance sheet concerns, most IOCs are well-equipped to handle a downturn in commodity prices. For deeper insights into Shell’s financial health and growth potential, investors can access the comprehensive Pro Research Report, available exclusively on InvestingPro.
In other recent news, Shell has announced the commencement of production at its Dover (NYSE:DOV) project in the Gulf of America, marking a significant development in its deep-water operations. This initiative is expected to produce an estimated peak output of 20,000 barrels of oil equivalent per day, adding to Shell’s robust production capabilities. Additionally, Shell revealed plans to sell its 16.125% stake in Colonial Enterprises to Brookfield Infrastructure Partners (TSX:BIP_u) for $1.45 billion, a move aimed at simplifying its portfolio and focusing on areas of competitive advantage. This transaction is anticipated to conclude in the fourth quarter of the year, pending regulatory approvals.
In the financial sphere, TD Cowen has adjusted Shell’s price target from $82.00 to $76.00 while maintaining a Buy rating. The revision follows a reassessment of Shell’s first-quarter earnings per share, now estimated at $1.58, below the consensus of $1.70. Analyst Jason Gabelman from TD Cowen highlighted Shell’s strong balance sheet and its ability to sustain dividends even with low oil prices, suggesting continued share repurchases. Moreover, UBS has identified Shell as one of the most crowded long positions in the energy sector, alongside TotalEnergies (EPA:TTEF), following a positive response to Shell’s recent Capital Markets Day.
Shell also announced a leadership change, with Colette Hirstius set to replace Gretchen Watkins as President of Shell USA, effective August 1, 2025. Hirstius, currently Executive Vice President, Gulf of America, will continue her existing duties alongside her new role. This transition is seen as part of Shell’s strategy to strengthen its presence in the US market. These developments reflect Shell’s ongoing efforts to optimize its operations and strategic positioning in the global energy landscape.
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