Shell Plc (SHEL - Get Rating) is an oil and petrochemical company that operates in Europe, Asia, Oceania, Africa, the United States, and the rest of the Americas. It discovers and extracts crude oil, natural gas, and natural gas liquids; markets and transports oil and gas; manufactures gas-to-liquids fuels and other products; and runs upstream and midstream infrastructure necessary to deliver gas to market.

The company is planning to unveil a new offshore drilling platform in the Gulf of Mexico. Another platform, similar to the one that is due to be deployed, may be launched in other regions of the Gulf in 2024. Despite the risk that the government may further restrict drilling due to climate concerns, the firm has continued to make significant advances in oil production.

In addition, according to reports, Shell spent around $3 billion to create Vito, a drilling platform deployed in deep waters southeast of New Orleans. The project is a joint venture between Shell and Norway’s Equinor (EQNR), with Shell holding a 63% share. The stock has gained 17.6% over the past year to close yesterday’s trading session at $47.69.

Here’s what could shape SHEL’s performance in the near term:

Strong Profitability

SHEL’s trailing-12-month net income margin of 7.4% is 52.9% higher than the industry average of 4.9%. Also, its ROC, ROE, and ROA are 47.8%, 19.6%, and 43.4% higher than the respective industry averages. Furthermore, its asset turnover ratio of 0.72% is 35% higher than the industry average of 0.53%.

Discounted Valuation

In terms of forward Non-GAAP P/E, the stock is currently trading at 4.90x, 27.9% lower than the industry average of 6.80x. Also, its forward EV/Sales of 0.57x is 67.4% lower than the industry average of 1.74x. Moreover, SHEL’s forward Price/Sales of 0.45x is 64.2% lower than the industry average of 1.26x.

Consensus Rating and Price Target Indicate Potential Upside

Of the three Wall Street analysts that rated SHEL, two rated it Buy. The 12-month median price target of $67.33 indicates a 41.2% potential upside. The price targets range from a low of $60.00 to a high of $75.00.

POWR Ratings Reflect Stable Prospects

SHEL has an overall C rating, which equates to a Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. SHEL has a B grade for Sentiment. The consensus price target and ratings are consistent with the Sentiment grade.

Of the 98 stocks in the B-rated Energy – Oil & Gas industry, SHEL is ranked #51.

Beyond what I’ve stated above, you can view SHEL ratings for Growth, Stability, Value, Momentum, and Quality here.

Bottom Line

While the stock has slumped 17.8% over the past month, SHEL’s oil division is thriving in the face of rising commodity prices. The firm expects to make a profit of more than $1 billion in its refining sector in the second quarter, as profit margins have grown during the first quarter.

In addition, analysts expect its EPS to increase 77.5% for the quarter ended June 2022 and 134.9% in the next quarter. Considering the stock’s current valuation, it could see significant upside in the near term.

How Does Shell Plc (SHEL) Stack Up Against its Peers?

While SHEL has an overall C rating, one might want to consider its industry peer, Adams Resources & Energy Inc. (AE - Get Rating), TotalEnergies SE (TTE - Get Rating), and Whitecap Resources Inc. (SPGYF - Get Rating), which have A (Strong Buy) ratings.

SHEL shares were trading at $47.68 per share on Wednesday morning, down $0.01 (-0.02%). Year-to-date, SHEL has declined -7.89%, versus a -20.11% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...

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