Energy stocks have endured a challenging year, but European Big Oil companies caught the attention of Goldman Sachs. According to the investment bank’s analysts, led by Michele Vigna, there is a notable shift as European Big Oils began to outperform their U.S. counterparts. This has led to the potential closure of the 40% valuation gap against their U.S. peers. Despite the increase in oil prices due to Houthi attacks in the Red Sea, followed by the subsequent easing of shipping disruptions, the 2024 outlook for oil demand has been lackluster. Brent oil prices were seen trading at $77.54 on Jan. 1. However, Goldman Sachs sees European Big Oils as attractive due to their enhanced buyback programs, which result in double-digit cash returns to shareholders. ESG (Environmental, Social, and Governance) investors have also shown increased optimism towards European Big Oil, reducing their underweight positions on oil and gas producers.
Top Picks and Ratings by Goldman SachsBritish oil giant Shell is among the top picks favored by Goldman Sachs. According to the investment bank, Shell possesses the highest quality combination of assets in the sector. The company, involved in the production of liquefied natural gas and chemicals, has a robust pipeline of projects that can sustain high cash flows for several European Big Oils. Despite a 3.4% downward revision of its price target to $85, Goldman Sachs maintains a buy rating on Shell, considering it as one of its conviction list stocks with around 28.6% potential upside from its December 27 close. In addition to Shell, other oil companies that received a buy rating and were listed as top picks by Goldman Sachs include Italian oil giant Eni and British player BP. Goldman has set a price target of 18 euros ($20.03) on Eni, indicating nearly 16.8% potential upside. For BP, the set price target is £620 ($793.55), representing around 33.3% upside potential.
Regarding Eni, Goldman Sachs highlighted its transformation into a higher return business driven by leading exploration success, disposals, and a strong pipeline of project start-ups. The investment bank views the company’s variable dividend policy and share buybacks as attractive for shareholders. As for BP, Goldman emphasized its strong operational execution in upstream and trading results, increasing focus on capital discipline and cost efficiency, and the introduction of an “enhanced” decarbonization strategy.
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