Goldman Sachs has upgraded Shell (SHEL, Financial) to a "Buy" rating, setting a target price of $92, which is 28% above its current price. During Shell's capital markets day, the company outlined its strategy for the coming years, focusing on shareholder returns, capital expenditure, and cash flow growth.
Shell plans to increase the proportion of cash flow returned to shareholders from 30-40% to 40-50%. This aligns with Goldman Sachs' expectations. The company aims to prioritize stock buybacks and maintain a 4% annual dividend growth. Goldman Sachs estimates that Shell will repurchase $14 billion in shares by 2025.
On capital expenditure, Shell is committed to capital discipline, reducing its annual capital expenditure guidance for 2025-28 to $20-22 billion. Previously, the company expected $22-25 billion for 2024 and 2025. Shell also plans to increase its structural cost reduction target to $5-7 billion by the end of 2028, based on 2022 plans. In its chemicals business, Shell will explore strategic opportunities in the U.S. and focus on premiumization and selective closures in Europe.
Shell has expanded its visibility on cash flow growth per share, now expecting a 10% increase in free cash flow per share by 2030. In its upstream business, Shell aims to maintain low-carbon targets while increasing production visibility. The goal is to grow total production in the upstream and integrated gas business by 1% annually until 2030, keeping oil production steady at 1.4 million barrels per day.
Shell remains committed to its climate goals and ambitions set in its 2024 energy transition strategy. Goldman Sachs identifies risks to Shell's stock price, including potential declines in oil and gas prices, refining margins, and possible negative impacts on growth or capital expenditure.
