Shell shares rise as Wolfe Research upgrades stock to ‘outperform’

Investing.com — Shares of Shell (BS:) edged higher on Friday  following an upgrade by Wolfe Research, which raised the energy giant’s stock rating to “outperform.” 

Analysts from Wolfe Research cited an opportunity presented by the recent pullback in Shell’s share price, positioning it as an attractive entry point for investors.

The analysts expressed optimism about Shell’s upcoming strategy update scheduled for March 25, which they expect will outline new targets through 2030.

The upgrade is rooted in Shell’s revised approach under CEO Wael Sawan. Since assuming leadership, Sawan has recalibrated the company’s strategic focus, balancing its investments between renewable energy and its traditional oil and gas operations. 

This dual approach has led to reductions in cash spending and targeted cost savings of $2 billion to $3 billion through 2025. 

Analysts at Wolfe Research anticipate that these efforts will help reframe Shell’s free cash flow outlook, providing the basis for improved dividend growth and sustained shareholder returns.

Wolfe Research set a price target of $80 per share for Shell, implying a 27.7% upside from its recent closing price of $62.65. 

This valuation reflects assumptions of long-term prices at $70 per barrel and a weighted average cost of capital of about 8%. The analysts argue that Shell’s capacity for dividend growth—estimated at 4% annually—could further solidify its position as a strong performer in the sector.

The note flagged the importance of dividends in driving market recognition of value, particularly in the oil and gas sector. 

Wolfe Research underscored that Shell’s current dividend policy already supports a higher valuation than the company’s recent trading levels, reinforcing the firm’s view that a shift toward enhanced dividend payouts could catalyze renewed share outperformance.

Shell’s recent underperformance, due to a sector-wide selloff and broader market rotations, has left its shares undervalued relative to their potential, according to Wolfe Research. 

The analysts see the upcoming strategic update as a pivotal moment for Shell to address market concerns and potentially reorient its cash return strategy, favoring dividends over share buybacks.