Oil Giant Shell Gets An Upgrade From Goldman Sachs Citing Strong Balance Sheet, Analyst Sees 38% Upside

Goldman Sachs upgraded Shell plc SHEL to Buy from Neutral), raising the price target from $74 to $85, noting that the company has the highest quality combination of assets in the Oil & Gas Sector.
The analyst sees material upside to operational performance in deepwater and LNG assets. At the same time, the company's strong balance sheet might allow it to veer towards the upper end of the sector's new 30-40% cash distribution range.
The oil firms had a quarter of solid performance and strong FCF generation. Shell recorded a bumper profit of around $40 billion in 2022.
Free cash flow reached $20 billion (pre-OWC) plus $13 billion WC release, remaining well above (almost 2x) the 5Y historical average but lower than exceptionally high 2/3Q levels due to lower oil & gas prices sequentially.
Based on Goldman estimates, the analyst notes resilient FCF and ongoing capital discipline, with the sector still generating a 15% FCF yield in 2023E. This FCF comfortably finances the sector's 6% dividend yield and leaves headroom for ongoing buybacks.
Several companies upgraded 2023 capex guidance, and the analyst expects around 20% Y/Y capex increase in 2023, driven by both an uptick in traditional O&G capex and low-carbon businesses.
Price Action: SHEL shares are up 1.27% at $61.40 on the last check Monday.

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