Piper Sandler changed its outlook on Shell Plc (NYSE:LON:) on Thursday, raising its price target to $85 from $76 previously, while maintaining an Overweight rating on the stock. The firm’s analysis indicates that European integrated oil companies (IOCs) are trading at a significant discount to their US counterparts, based on both free cash flow yield and enterprise value to earnings before interest, taxes , depreciation and amortization (EV/EBITDA). metric.
European IOCs currently show a free cash flow yield of 11% compared to 9% for US IOCs, and also trade at a 30% discount on an EV/EBITDA basis. The long-standing valuation gap could narrow if commodity prices, particularly gas, remain high or exceed expectations towards the end of 2024.
The firm particularly highlights the potential for European oil stocks to gain ground Exxon Mobile (NYSE:) (referred to as XOM in context) year-to-date performance. Shell, in particular, stands out for its rate of change under CEO Wael Sawan, with capital expenditures and costs trending toward the lower end of expectations due to strategic changes.
As the market expects BP (NYSE:) to follow in Shell’s footsteps and become this year’s top performer, Piper Sandler expresses caution, citing a greater degree of uncertainty over BP’s strategic adjustments and their ability to drive significant creation of value at this stage.
Insights on InvestingPro
Shell Plc (NYSE:SHEL) stands out as a promising investment, with Professional investment tips highlighting the company’s strategic financial maneuvers and market position. In particular, management’s aggressive share buyback program demonstrates strong confidence in the company’s value and future prospects. Added to this is Shell’s history of maintaining dividend payments for 20 consecutive years, demonstrating a reliable return for shareholders.
Investors may also find reassurance in Shell’s low price volatility, which suggests a stable investment with fewer market-induced risks. Furthermore, being a major player in the oil, gas and consumer fuels sector, Shell benefits from its significant market presence. The company’s moderate debt level and its trading position near its 52-week high further underline its financial health and market confidence. With strong performance over the past three months and analysts predicting profitability for the current year, Shell’s financial outlook appears solid.
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