Shell Extends Winning Formula With Investor Update

Oil and gas giant Shell maintained its focus on returns at first investor update since 2023.

Allen Good 27 March, 2025 | 10:53AM
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20 March 2025, Bavaria, Munich: The brand logo of the mineral oil and natural gas company Shell plc can be seen at a filling station of the company in Munich (Bavaria) on March 20, 2025. The Group's business areas include the exploration and production of crude oil and natural gas, the transportation and marketing of natural gas and electricity, the processing and distribution of mineral oil, petrochemicals and renewable energies. Photo by: Matthias Balk/picture-alliance/dpa/AP Images

Morningstar’s Metrics for Shell


With its latest update, Shell SHEL announced additional cost reductions, reduced capital spending guidance, and increased shareholder return targets.

Why it matters: Shell’s 2023 plan was well received but was only a “sprint” designed to last two years and demonstrate execution. With it complete, investors were awaiting further guidance to confirm that management would maintain its renewed focus on returns. Management delivered.

• After achieving its initial structural cost reduction target of $2 billion-$3 billion, Shell increased and extended those efforts, targeting $5 billion-$7 billion in reductions by year-end 2028.

• It also increased its shareholder payout target to 40%-50% of cash flow, up from 30%-40% previously, placing it at the top of its peer group. Peer Total’s guidance is for at least 40%. Given a low valuation, repurchases will be the primary focus, while the dividend will grow at 4% annually.

The bottom line: We plan to update our model with the latest guidance but do not anticipate a meaningful change to our fair value estimate, leaving shares modestly undervalued. Our no-moat rating is unchanged.

• Other European integrated oils are cheaper based on our fair value estimates. However, valuation aside, we believe Shell’s is one of the most compelling given its strategy. It continues to meet investor demand for capital discipline, ongoing cost improvement, and shareholder returns.

• The initial “sprint” was successful in delivering its financial targets, but it did not result in Shell’s valuation closing the gap with US peers. The long-term targets and established management credibility should help.


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Allen Good  Allen Good is a senior stock analyst covering the oil and gas industries.

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