Analysts at JP Morgan prefer Shell PLC (LSE:SHEL, NYSE:SHEL) over BP PLC (LSE:BP.) whilst seeing upside for both of London’s oil majors, with crude prices tipped to head back toward $90 per barrel in the third quarter.
Shell, compared to BP, benefits from more favourable financial gearing and valuation metrics, according to the American bank’s London-based analyst team.
Moreover, at current levels, JPM analyst Matthew Lofting sees a buying opportunity.
“Shell is core to our constructive buy the dips EU Oils thesis for advantaged leverage to still elevated O&G macro volatility and accelerating self-help,” he said in a note.
With crude prices forecast to be heading back toward $90 per barrel, JPM highlighted that oil majors such as Shell are “well in the money”, with their breakeven estimated between $50 and $55 per barrel, after capital spending.
Pointing to specific catalysts, the analyst noted Shell’s ‘top-ranked’ LNG portfolio, which he said is a “prime multi-quarter beneficiary of recent tightening” in the LNG market.
He also highlighted Shell’s “strong momentum” in terms of ‘margin accretive upstream oil and gas growth’.
On Shell’s valuation, he highlighted that the London-listed share price currently gives it a free cash flow yield of 12.5%, and, noted the talk of a US listing.
“We reiterate Shell as a structural global supermajor and member of energy equities Supercycle Club,” Lofting added.
JPM’s overweight rating comes with a price target of 3,500p, suggesting more than 25% upside to the current price of 2,753p.