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On Tuesday, TD Cowen maintained a Buy rating on Shell Plc (NYSE: SHEL), while reducing the price target from $82.00 to $76.00. The adjustment follows a review of the company's first-quarter earnings per share (EPS), which TD Cowen now estimates at $1.58, below the consensus of $1.70 per share. Trading near its 52-week low of $60.15 and showing an overall "GOOD" financial health score according to InvestingPro, Shell's stock has experienced a notable 14.7% decline over the past week. The firm's analyst, Jason Gabelman, noted that the future outlook is more significant than past results given the current market conditions.
Gabelman emphasized Shell's ability to cover its dividend with a low oil price and highlighted the company's strong balance sheet, which maintains a moderate debt-to-equity ratio of 0.43. He suggested that these factors would support Shell's share buyback program, which could proceed at approximately $3 billion per quarter. This strategy, aligned with management's aggressive share repurchase activity noted by InvestingPro, is seen as a way for Shell to capitalize on the recent dip in its stock price. The company has maintained dividend payments for 21 consecutive years, currently offering a 4.6% yield.
The analyst's comments also touched upon the impact of commodity price changes on Shell's near-term earnings, which contributed to the lowered price target. Despite the reduction, the Buy rating indicates a positive view of Shell's stock performance going forward.
Shell's financial health, characterized by its robust balance sheet and the low oil price required to sustain its dividend, positions the company to continue its share repurchases. This move is expected to benefit shareholders, especially in light of the recent decline in equity prices.
The updated price target represents TD Cowen's adjusted expectations for Shell's stock value, factoring in the anticipated lower earnings in the near term due to fluctuations in commodity prices. Despite this, the firm maintains confidence in Shell's overall investment appeal.
In other recent news, Shell Offshore Inc. has commenced production at its Dover (NYSE:DOV) project in the Gulf of America, marking its second subsea tieback to the Appomattox production hub. This development is expected to contribute an estimated peak output of 20,000 barrels of oil equivalent per day. Additionally, Shell has announced the sale of 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. This transaction is expected to be finalized in the fourth quarter of this year, pending regulatory approvals.
In the analyst community, UBS reported that Shell has emerged as one of the most crowded long positions in the energy sector, driven by a positive reception from its recent Capital Markets Day. Despite this, Shell witnessed significant outflows, potentially due to profit-taking by investors. In a separate development, Elliott Investment Management has established a short position in Shell, equivalent to 0.5% of its shares, as part of its global hedging strategy. This short position is intended to balance Elliott's long position in BP (NYSE:BP), providing a hedge against potential share price fluctuations.
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