Royal Dutch Shell
Heavyweight broker JP Morgan Cazenove this week revised down its forecasts for Brent crude prices, and then took the red pen to its valuations of big oil companies. The broker moved BP from overweight to neutral, maintained BG at neutral, leaving only Shell with a positive overweight rating among the FTSE 100s top players.
The Anglo-Dutch giant, which released encouraging Q3 results at the end of last month, remains the top sector pick of most City experts. The majority of some 40 brokers covering the company rate it a buy, with only one analyst having it tagged as a sell. JP Morgan Cazenoves price target of 2,500p is towards the bottom end of a range that rises as high as 2,850p.
Trading at 2,265p at the time of writing, Shell is on an attractive forecast P/E of 10 and offers a dividend yield of over 5%.
Tullow Oil is a tiddler compared with Royal Dutch Shell. And its shares have been in decline for the best part of three years, halving in value in the last year alone. Dry wells and production delays have taken their toll.
However, Tullow is currently in favour with most City experts; indeed, I cant find a single analyst rating the company a sell. Tullow released a Q3 statement on Wednesday in which management said it would be reducing exploration spend and re-allocating capital towards producing assets and the commercialisation of existing discoveries.
The value of Tullows assets compared with the share price (455p, at the time of writing) is behind most of the analysts buy ratings. Barclays, for example, said after the Q3 announcement: The overall impact is an increase in our Tangible NAV to 704p/share (from 687p) and increased conviction in our Overweight rating and 750p Price Target.
A lot of analysts suspended their coverage of Shire, the FTSE 100s third-largest pharma firm, when it looked like the company was going to be taken over by US group AbbVie. However, AbbVies Board did a U-turn last month, and the two companies agreed to terminate the deal.
Deutsche Bank was one of a number of brokers who resumed coverage of Shire with a buy rating. Two-thirds of City experts covering the company now rate it a buy, and there are no sells.
Analysts at Panmure Gordon explain the bull case for Shire as a standalone company: Shire will likely re-commence its acquisition spree which should boost organic double digit growth to high teens over the long-term. With such growth, we believe the stock will trade at a premium to its peer and group.
Shires shares dived from well above 5,000p to well below 4,000p when the AbbVie deal fell through, but have now recovered to 4,320p 18 times consensus forecast earnings for 2015.
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G A Chester has no position in any shares mentioned. The Motley Fool UK has recommended Tullow Oil. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.