Shell PLC (LSE:SHEL, NYSE:SHEL) is still the stock of choice in the oil sector, according to Jefferies, which whilst tweaking lower earnings forecasts says it is expecting another bumper shareholder payout.
Jefferies snipped its price target for Shell by around 3% to account for a 5% cut to 2023/24 earnings resulting from higher operating costs brought on by inflation.
The investment bank remains undeterred from taking a bullish view nonetheless.
Jefferies analysts said: “Shell remains our preferred large-cap name in Europe: trading at a higher free cash flow (FCF) yield (vs. BP and TotalEnergies) and offering superior shareholder remuneration growth prospects.
“We continue to expect Shell to improve shareholder remuneration policy and increase its base dividend at the June capital markets day (CMD).”
The analysts added: “Shell trades at a 20% FCF yield based on our FY23 estimates. This is well above European sector average of 15% and large cap peers (BP 17% | TTE 14%).
“While we expect oil prices to improve from the current level, even at the current levels, Shell will be able to keep its quarterly buybacks flat at US$$4bn (consensus US$3.4bn) and expect a 15% dividend per share increase at the June CMD (together with a reset of the 20-30% CFFO distribution policy).”
They acknowledged that rising opex would be a worry for investors but reckon that concerns over working capital trends and possible changes to shareholder returns aren’t justified.
Instead the analysts believe the oiler will “smooth the effects” and predicts opex levels will be held within current boundaries through 2023 and beyond.
Jefferies has a ‘buy’ recommendation for Shell with a £30.00 price target suggesting some 23% upside to the current market price of around £24.37 per share.