Royal Dutch Shell plc (ADR) (NYSE: RDS-A) (NYSE: RDS-B) could be one of the best long-term energy value plays. According to a new note by Argus analyst Bill Selesky, the firm maintains its Buy rating and sees 13 percent upside for the high-yielding stock.
“We expect Shell’s underperformance relative to the S&P 500 and the Energy sector over the last few years to reverse as the company cuts costs, divests noncore assets, improves its return on capital, and maintains adequate liquidity,” Selesky explained.
Following a Q2 earnings miss, Argus maintains its Buy rating, its $60 price target and its 2017 EPS projection of $3.90, slightly ahead of consensus forecasts of $3.82. Argus has lowered its 2016 EPS projection from $2.41 to $1.96 due to weaker-than-expected commodity prices.
Selesky believes Shell’s aggressive spending has set the table for an extended period of increased efficiency. He expects the company should be able to significantly boost its free cash flow in coming years.
In addition, Selesky also expects Shell will be getting some help from the oil market. Argus believes the oil market bottomed in early 2016 and the market recovery will continue in 2017.
For the rest of 2016, Argus forecasts oil prices will range between $36/bbl and $52/bbl.
The firm also expects Shell to maintain its 7.1 percent dividend.
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