Shell's Strategic Plans Boosted by Goldman Sachs' 28% Target Price Increase

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 follows Shell's capital markets day held on March 25, where the company outlined its strategic plans and guidance for the coming years. The key points from this event include a focus on increasing cash returns to shareholders, optimizing capital expenditures, and maintaining a commitment to achieving net-zero emissions.

Shell has increased the proportion of cash flow distributed to shareholders from 30-40% to 40-50%. The midpoint of this new range, 45%, aligns with Goldman Sachs' expectations. The company plans to prioritize stock buybacks while maintaining a progressive dividend growth policy of 4% per year. Goldman Sachs estimates that Shell will repurchase $14 billion in stock by 2025.

In terms of capital expenditures, 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. Shell also aims to increase its structural cost savings 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 expanded the visibility of its per-share cash flow growth, now projecting a 10% increase in free cash flow per share by 2030. The company aims to grow its upstream and integrated gas business output by 1% annually while maintaining oil production at the current level of 1.4 million barrels per day until 2030. Shell remains committed to its climate targets and ambitions set out in its 2024 energy transition strategy.

Goldman Sachs identifies the primary risks to Shell's stock price as potential declines in oil and natural gas prices, refining margins, and negative impacts on growth or capital expenditures. Despite these risks, the firm's positive outlook on Shell is driven by the company's strategic initiatives and commitment to shareholder returns. The company's focus on increasing cash returns to shareholders, optimizing capital expenditures, and maintaining a commitment to achieving net-zero emissions positions it well for future growth and profitability. Shell's strategic plans and guidance for the coming years, as outlined during its capital markets day, provide a clear roadmap for achieving these goals and delivering value to shareholders.