Shell's Estimated Capacity: 32%
Shell, the global energy giant (WKN: A3C99G), reported disappointing second-quarter earnings yesterday, with the downstream segment being particularly disappointing, according to Biraj Borkhataria, an analyst at RBC. Despite this setback, most analysts remain optimistic about Shell's dividend stock.
The company's diverse operations across oil, gas, chemicals, and retail allow different segments to compensate for each other's weaknesses, providing stability in returns. This diversity, coupled with Shell's focus on shareholder returns, including a strong dividend yield forecasted around 4%, is crucial for long-term investor confidence.
Management has previously indicated that Shell can sustain its dividend even at lower oil prices, as low as $40 per barrel, which is currently not the case with oil prices at $67. This suggests resilience in the dividend policy.
Shell is also pivoting towards LNG and renewables, which could offset production declines and position the company for long-term viability. This strategic shift is seen as essential for adapting to the changing energy landscape.
Moreover, Shell's ongoing share buyback program demonstrates a strong commitment to capital return strategies, which can increase earnings per share and support share prices. This activity shows that the company is using its cash efficiently to benefit shareholders.
Despite these positive factors, analysts have revised their Q2 surplus forecasts downwards. Depending on the consensus source used, Giacomo Romeo estimates that the necessary correction could be between 10 to 20%. Joshua Stone, an analyst from UBS, reduces his Q2 surplus forecast for Shell by 16% to $4.1 billion.
However, the analysis firm Jefferies and private bank Berenberg reaffirmed their buy recommendations for Shell, with Jefferies keeping its price target at 3,000 pence and Berenberg maintaining its price target at the same level. UBS sets its price target for Shell at 2,950 pence.
Biraj Borkhataria from RBC maintains his "Outperform" rating on the undervalued Shell shares and sees a fair value of 3,400 pence (around €39.43) for Shell shares, a substantial 32% above yesterday's closing price.
Despite the challenging market environment and the lackluster chart for Shell, the current signals from the company suggest a reduced Q2 surplus for Shell. However, the company's strategic diversification, commitment to shareholder returns, and adaptability in the energy sector are factors that keep analysts optimistic about its dividend stock.
It is important to note that the current analysis does not provide a recommendation for entry into Shell's stock, and a stop-loss for Shell is set at €24.00. Nonetheless, most experts remain optimistic about the dividend stock, particularly analysts from the Canadian bank RBC.
- Shell's diverse business operations, focusing on shareholder returns and a strong dividend yield, contribute to long-term investor confidence, even despite the revised quarterly earnings forecasts.
- The company's strategic shift towards LNG and renewables, coupled with its commitment to capital return strategies, positions Shell for long-term viability and adaptability in the changing energy landscape, hence keeping analysts optimistic about the company's investing potential.
