Shell's Stock Target Raised 28% by Goldman Sachs After Capital Markets Day

Goldman Sachs has released a research report, assigning a "buy" rating to Shell (SHEL.US) with a target price of $92, which is 28% higher than the current stock price. This optimistic outlook comes as Shell held its Capital Markets Day on March 25, outlining its strategic plans and guidance for the coming years.

One of the key points highlighted by Shell is its commitment to increasing cash returns to shareholders. The company plans to raise the proportion of cash flow distributed to shareholders from 30-40% to 40-50%. This new range aligns with Goldman Sachs' expectations, with the midpoint of the range being 45%. Shell intends to prioritize stock buybacks while maintaining a progressive dividend growth policy of 4% annually. Goldman Sachs estimates that Shell will repurchase $14 billion in stock by 2025.

In terms of capital expenditure, Shell has reaffirmed its commitment to capital discipline, reducing its annual capital expenditure guidance for 2025-2028 to $20-22 billion. Previously, the company had forecasted capital expenditures of $22-25 billion for 2024 and 2025. Additionally, Shell aims to increase its structural cost reduction target from $20-30 billion by the end of 2025 to a cumulative $50-70 billion by the end of 2028, based on 2022 plans. For its chemicals business, Shell plans to explore strategic and partnership opportunities in the United States and pursue high-end and selective closures in Europe.

Shell has also expanded the visibility of its cash flow growth, now projecting a 10% increase in free cash flow per share by 2030. In its upstream business, the company aims to increase production visibility while maintaining its low-carbon goals. The target is to grow the total production of upstream and integrated gas businesses by 1% annually by 2030, while keeping oil production at the current level of 1.4 million barrels per day until 2030.

Shell has maintained its climate targets and ambitions set in its 2024 energy transition strategy. Goldman Sachs identifies the primary risks to Shell's stock price as declines in oil and natural gas prices, refining margins, and negative impacts on growth or capital expenditure.