Opinions
Karl Berger
Royal Dutch Shell PLC (A)
RDS.A-N
PAST TOP PICK
Dec 05, 2012
$66.970
Stock price when the opinion was issued
integrated oils
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TOP PICK
Stockchase Research Editor: Michael O'Reilly A way to play the global recovery in oil and gas, while avoiding the pipeline drama in North America. The company is working to become carbon neutral by 2050, is one of the largest producers in the world, and is investing in renewable energy. It trades below book value and at 8.5x forward earnings. It pays a good dividend, backed by a payout ratio under 30% of next year's cash flow. We would buy this with a stop loss at $30, looking to achieve $51 -- upside potential over 30%. Yield 3.37% (Analysts’ price target is $50.86)
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DON'T BUY
The conversation is centred around climate. Shell and others are doing as much as they can to shift to renewables. Look at clean power companies instead, as they won't have this overhang. The story is a lot easier when you're not fighting the uphill battle of being characterized as an energy company.
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COMMENT
In May, they announced their target of a 20% reduction in emissions by 2030--a major announcement. But then the International Court in the Hague ordered a 45% reduction, which was a shock to RDS. So, they must speed up their plan, which is building a portfolio of low-carbon technologies, including renewables and bio-energy and hydrogen power. This is happening to all the oil majors, but have to compete with renewable companies as investors have bid up these stocks and assets. Short-term, this reallocation of capital has caused capex to collapse among all the oil majors. So, there's a squeeze in the oil market with demand spiking but with limited oil demand. There's no spare capacity. In the medium term we are awash in oil. That said, there could be a short-term opportunity.
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TOP PICK
Stockchase Research Editor: Michael O'Reilly We reiterate RDS.A as a TOP PICK as a way to play the global recovery in oil and gas, while avoiding the pipeline drama in North America. The company is working to become carbon neutral by 2050, is one of the largest producers in the world, and is investing in renewable energy. It trades at book value and is priced at 7x forward earnings. It pays a good dividend, backed by a payout ratio under 30% of next year's cash flow. We like how they are increasing cash reserves, while paying down debt and buying back shares. We continue to recommend keeping a tight stop at $41, with upside to $59.50 -- potential over 33%. Yield 4.34% (Analysts’ price target is $59.49)
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PAST TOP PICK
(A Top Pick Feb 24/22, Up 25%)
Just reported their highest-ever profit of under $40 billion. Pays a 3.5% dividend that should grow 8-10% annually in share buybacks. Shares have been outperforming the MSCI world since late 2020. Oil demand continues to outstrip supply. Announced share buybacks and a dividend hike.
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(A Top Pick Nov 22/11. Up 3.61%.) Dividend is solid, very sustainable and will likely grow. A little disappointed that company management hasn’t grown at a more active pace. A little conservative. If the price of oil stays reasonably consistent, he expects they could get spectacular dividend growth over the next little while.