Investing.com — Shares of Shell (BS: ) rose on Friday after Wolfe Research upgraded the energy giant’s stock rating to “outperform”.
Analysts at Wolfe Research cited the opportunity presented by the recent decline in Shell’s share price, making it an attractive entry point for investors.
Analysts expressed optimism about Shell’s upcoming strategy update, scheduled for March 25, which is expected to reveal new targets for 2030.
The upgrade is rooted in Shell’s renewed approach under the leadership of CEO Wael Sawan. After taking the helm, Sawan realigned the company’s strategic focus, balancing its investments between renewable energy and traditional oil and gas operations.
This two-pronged approach has resulted in reduced cash spending and targeted savings of $2 billion to $3 billion by 2025.
Analysts at Wolfe Research expect these efforts to help revise Shell’s free cash flow outlook, providing the basis for dividend growth and sustainable shareholder returns.
Wolfe Research set a price target on Shell of $80 per share, which would imply a 27.7% upside from its recent close of $62.65.
This estimate reflects assumptions of long-term prices of $70 per barrel and a weighted average cost of capital of approximately 8%. Analysts argue that Shell’s capacity for dividend growth, estimated at 4% annually, could further strengthen its position as a strong performer in the sector.
The note highlights the importance of dividends in recognizing value in the market, particularly in the oil and gas sector.
Wolfe Research highlighted that Shell’s current dividend policy already supports a higher valuation than the company’s recent trading levels, bolstering the firm’s view that a move toward enhanced dividend payments could lead to renewed stock performance.
According to Wolfe Research, Shell’s recent failure to sell off across the sector and the broader market rotation has left its shares below potential.
Analysts see the upcoming strategic update as a crucial moment for Shell to address market concerns and potentially realign its cash-return strategy, favoring dividends over share buybacks.