Morgan Stanley Upgrade of Shell to Overweight
Morgan Stanley has upgraded Royal Dutch Shell plc (Shell) to an Overweight rating and increased its price target to 3,780 pence per share. The upgrade was issued by the brokerage’s energy research team led by analyst Martijn Rats as part of its annual review of the upstream positions of Europe’s major oil producers.
The firm highlighted a markedly improved production outlook for the European oil sector. Analysts now have bottom‑up visibility on production growth for Europe’s “Big Five” oil majors through 2032, extending the horizon from 2030 in the previous edition. Aggregate oil and gas output for the group is projected to expand at an annual rate of 2.9 % between 2025 and 2030, up from the 1.2 % growth rate estimated a year earlier.
Shell’s valuation, according to Morgan Stanley, has been constrained more by its dividend policy than by underlying business fundamentals. The broker described Shell as the sector’s “most compelling risk/reward” opportunity and named it its top pick, targeting a 15 % total shareholder return. It expects the company’s dividend per share (DPS) growth rate to accelerate to 10 % per year into the early 2030s, a rise from the 4 % annual increase recorded since 2023. The analysts cited ample room in Shell’s financial framework, growing confidence in cash‑flow generation under CEO Wael Sawan, and the fact that recent share buybacks have not materially re‑rated the stock as reasons the company could shift toward faster dividend growth.
Morgan Stanley retained its Overweight rating on BP, stating that the company is likely to significantly outperform its own balance‑sheet de‑gearing target. BP is described as combining an attractive valuation with an improved upstream outlook and a slate of potential catalysts.
The report also highlighted Galp Energia for its long‑term production visibility, noting that the Portuguese firm offers investors exposure to high‑quality offshore assets while it proceeds with a corporate reorganisation of its downstream segment. Eni was identified as having the strongest upstream growth outlook, with a projected production increase of 4.5 % to 2030. Conversely, Equinor faces the most pronounced headwinds, with production expected to fall 18 % by 2035 relative to 2025 levels.
On the broader sector level, Morgan Stanley assigned an “In‑Line” rating to the energy sector, acknowledging uncertainty over how ongoing conflicts in the Middle East and Eastern Europe may influence commodity prices and inflation. Nevertheless, the analysts argued that the sector’s diversification benefits justify maintaining at least an in‑line weight in generalist portfolios.