Should I 'buy' Shell or BP? Here's what a leading investment bank has to say
Published: 08:22 09 Oct 2024 EDT
Shell PLC (LSE:SHEL, NYSE:SHEL) and BP PLC face mixed forecasts as they prepare for third-quarter reports, according to JP Morgan’s latest research on the oil and gas sector.
Both companies are expected to see lower profits in the upcoming quarter, though Shell's outlook is seen as more stable than BP's, reinforcing its position as a preferred investment.
The Anglo-Dutch giant, which will release its results on October 31, is forecast to post a net income of $5.4 billion for the third quarter. This is a drop from the $6.3 billion reported in the same period last year.
The decline reflects weaker trading in refined products and a seasonal reduction in liquefied natural gas volumes, but JP Morgan analysts suggest Shell remains a resilient performer.
The company’s robust cash flow, forecast at $12.5 billion, will likely support ongoing share buybacks of $3.5 billion and an attractive dividend yield of 11.1%.
BP, on the other hand, faces a more challenging quarter. Net income is expected to be $2.3 billion, down 30% from the prior year, while BP's cash flow is also projected to fall to $6.3 billion.
Analysts highlight higher maintenance costs and lower production in key regions as significant factors behind the weaker performance. BP’s long-term strategy could be under scrutiny amid reports that it may reconsider its target to cut oil and gas production by 2030.
Looking at the broader market, oil prices are expected to remain volatile, with forecasts for Brent crude at $70 per barrel in 2025, down $10 from earlier projections.
This could impact the long-term earnings of both companies, though Shell appears better positioned to weather the market’s ups and downs due to its higher free cash flow and disciplined capital management.
BP’s outlook, by contrast, remains more uncertain as it contends with the fallout of strategic shifts and potential reductions in production.
JPMorgan analysts have reiterated their 'overweight' rating on Shell, maintaining that it is one of the best-equipped companies in the sector to handle volatility. BP, however, continues to carry an 'underweight' rating.
