Are Shell shares a good investment?

Shell shares suffered when the company faced an unplanned outage at its Pernis refinery, but have since recovered.

shell plc (LSE:SHEL) made headlines when the company faced an unplanned outage at its Pernis refinery. It is one of the largest refineries in Europe and caused an immediate drop in Shell’s share price. The cause of the problem was an unexpected gas leak. Unfortunately, this news sparked panic throughout the energy market, raising concerns about the supply and prices of petroleum products in the region.

Although the refinery will continue to operate, the oil company will face some complications in operations in the near future. Let’s take a deeper look at the likelihood of ghost stocks being a good investment or not.

Key points

• In an unfortunate turn of events, Europe’s largest oil refinery, owned by Shell Plc, faced an unplanned outage.
• The company has initiated, as planned, a $3 billion share buyback program.
• The price forecasts, coupled with the surprising financial performance, leave no doubt that Shell stock is a good investment.

What does Shell do?

Shell is a leading oil refiner dedicated to the production of oil and gas. It operates in 70 countries around the world with a supporting workforce of more than 91,000 people.

What do the finances look like?

In the recent quarterly report for its 2023 fiscal year ending in December, the oil company reported strong operating performance and cash flows despite a lower commodity price environment. This strong performance has improved distribution, and the company reported $5.1 billion in adjusted earnings on lower oil and gas prices and refining margins, lower volumes, and lower LNG marketing and optimization results.

Through it all, the company never fails to reward its shareholders when management initiated, as planned, a $3 billion stock buyback program. In the second quarter, there was a 15% increase in payments to shareholders, which increased the dividend to $0.331 per share, bringing the yield closer to 4% at that time.

The Bullish Case for Shell Share Price

Shell’s growth plans focus on maintaining a competitive portfolio and developing assets to meet customer needs for more affordable, reliable and clean energy.

The company’s outlook for 2023 includes cash capital expenditure (capex) in the range of $23 billion to $27 billion. The goal of Shell’s capital framework is a distribution of at least 20% to 30% of cash flow from operations to shareholders. The group may choose to return cash to shareholders through a combination of dividends and share buybacks over the next year.

Going forward, some of Shell’s major projects are:

1. FLNG Prelude: It is a floating liquefied natural gas (FLNG) facility that can now switch to operating gas instead of diesel.
2. LNG Canada: A major liquefied natural gas processing facility located in Kitimat, British Columbia.
3. Shell Polymers Monaca: A petrochemical complex in western Pennsylvania.

The Bearish Case for Shell Share Price

While Shell is the largest oil and gas company in the world, it faces a very serious dilemma. The company is in a difficult situation, facing the task of balancing growing demand for fossil fuels with the pressing need to address climate risks.

Now that the world is shifting towards sustainable energy sources, Shell is under pressure to reduce carbon emissions and transition to a cleaner energy future. Management is fully aware of this imminent threat and has already taken steps to address it similar to its other competitors such as PA.

However, as things stand, Shell is still firmly in the fossil fuel industry. And the transition to alternative and renewable energy production will likely be an immensely complex challenge.

Shell Stock Price Prediction

Shell shares have been slightly volatile since the beginning of 2023. From a price of 2,326 pence, the stock rose to 2,640 pence in the first. From here the stock fell to 2200p and eventually reversed again. Since then, Shell shares have been rising steadily. So far this year, the oil company’s shares have appreciated almost 10%.

Most analysts have offered a 12-month price target of 2,923.49p, with a high estimate of 6,261.72p and a low estimate of 2,409.54p. This average price target is an increase of approximately 12% from the recent closing price of 2.596p. Assuming these forecasts are accurate, they suggest that investors may be looking for a decent entry point for investing.

Should you buy Shell shares today?

Shell has proven to be a leader in the energy market by recognizing the need to transition to a more sustainable energy future. Between now and 2030 and 2035, the company plans to reduce the carbon intensity of its products by 20% and 45%, respectively.

Furthermore, the price forecasts, along with the surprising financial performance, leave no doubt that Shell stock is apparently a good investment. This is undoubtedly supported by the generous return of value delivered to shareholders in the form of buybacks and dividends.

Of course, much of this performance is tied to the energy cycle, which is currently on the rise. Needless to say, this will probably eventually be reversed. However, timing a cycle is not easy. And as a long-term investor, I’m more interested in business potential a decade from now than a cycle. Therefore, today I am tempted to purchase some Shell shares for my portfolio.

Saima Naveed does not own shares in any of the companies mentioned. The Money Cog has no position in any of the companies mentioned. The opinions expressed about the companies and assets mentioned in this article are those of the author and therefore may differ from the opinions of The Money Cog Premium Services analysts.