Why Royal Dutch Shell Has Compelling Upside Right Now

Royal Dutch Shell plc’s (NYSE: RDS-A) accelerating transition into an integrated energy company translates to compelling value upside, according to MKM Partners.

The Royal Dutch Shell Analyst: John Gerdes initiated coverage of Royal Dutch Shell with a Buy rating and a price target of $57.

The Royal Dutch Shell Thesis: The company’s investment in the integrated renewable power business should increase from around $1 billion in 2020 to more than $2 billion per annum by 2023, “with the underlying expectation of an approximate 10% unleveraged return,” Gerdes said.

“From 2021 through 2025, Shell should generate ~$91.5 billion of FCF, which is ~70% of the company’s market capitalization,” he wrote in a note.

“Shell plans to become a significant integrated power producer/retailer through a growing emphasis on the development of renewable wind and solar power projects. The company plans to increase net renewable generation capacity from ~0.8 GW to ~4.4 GW by YE25,” the analyst wrote.

RDS Price Action: Shares of Royal Dutch Shell had risen by 3.9% to $36.34 at the time of publication Wednesday.