Jefferies has lifted its target for Shell’s share price (LON:RDSA), telling clients, however, that the company would have to demonstrate its ability to preserve returns even as it invests in its low-carbon businesses, Sharecast reports. The comments came after the blue-chip group recently updated investors on its strategy, increasing its organic free cash flow outlook and signalling that it could distribute $125 billion or more to shareholders via dividends and share buybacks over the five-year period of 2021-2025.
Shell’s share price came under pressure in the previous session, giving up 1.06 percent to close at 2,515.50p, and underperforming the broader London market, as the FTSE 100 shed 0.42 percent. This morning, the oil major’s shares have added 0.34 percent to 2,524.00p as of 08:05 BST, compared with a 0.16-percent dip in the Footsie.
Jefferies tweaks target on Shell share price
Jefferies reaffirmed Shell as a ‘buy’ yesterday, while lifting its price target on the stock from 3,000p to 3,050p. Sharecast quoted the broker as commenting that historically, the group’s “upstream business has provided the highest returns and investors may need proof that Shell can increase its return profile as its growth priorities change”.
“The Upstream business will remain the largest cash generator for Shell and will be allocated about 40 percent of capital spending – it isn’t going away,” the broker pointed out, adding, however, that it believed that “growing the return structure while capital allocation to the Upstream declines as a percentage of overall spend is a key risk for the Shell investment thesis”.
Analysts expect further outperformance
Jefferies nevertheless reckons that this year, Shell’s return of cash to shareholders was estimated at 9.6 percent, 300 basis points more than its closest peer and the visibility provided on its returns “distinguishes the stock and we expect further outperformance”.
Earlier this week, the Anglo-Dutch group moved to offload a refinery in California as part of its strategy to reshape its refining business.
According to MarketBeat, the blue-chip oil major currently has a consensus ‘buy’ rating, while the average target for Shell’s share price stands at 2,976.54p.