Shell PLC's (LSE:SHEL, NYSE:SHEL) shares have room to climb, says JP Morgan, as “opportunity knocks” for the oil giant to narrow the gap with its bigger US rivals.
The bank has an 'overweight' rating on the stock and a price target of 3,300p, reflecting confidence in the Anglo-Dutch major's long-term strategy and ability to reward investors.
A big focus will be on Shell’s capital markets day on March 25, where it is expected to outline the next phase of its strategy.
JP Morgan believes the company will double down on liquefied natural gas (LNG) as its main growth driver while cutting back on some non-core energy businesses.
The bank estimates that Shell’s capital spending could stay below $25bn a year beyond 2025, with a tighter focus on key areas.
That, in turn, could free up more cash for shareholders. JP Morgan expects Shell to increase the percentage of cash flow it returns to investors to more than 40%—up from the current 30-40% range.
JPM also sees potential for a minimum level of share buybacks, estimating that Shell could commit at least $9bn annually based on an oil price of $60 a barrel, rising to $10bn with some extra flexibility.
At $70 a barrel, analysts say Shell’s 2025 cash return could hit 11.2%, with the fixed part of that exceeding 80%.
That would be a big step towards matching the shareholder returns offered by ExxonMobil and Chevron, potentially helping Shell close the valuation gap with them.
The shares, up 2% year to date, were flat in afternoon trading on Tuesday at 2,581p.