With the economic rebound showing signs of strengthening and oil prices rallying, we expect integrated oil companies such as Royal Dutch Shell (RDS.A) to continue to accelerate revenue and earnings growth over the next few quarters.
Apart from the economic recovery, the group’s recent results have also benefited from its operational and production efficiency and contributions from growth programs. Royal Dutch Shell has been able to boost returns and remain competitive by embarking on aggressive cost reduction initiatives, exiting unprofitable markets and streamlining the organization.
We believe that the company offers meaningful long-term upside potential for investors and therefore upgrade Royal Dutch Shell ADRs to Outperform from Neutral. Our $83 price objective reflects a 2011 P/E multiple of 10.6x, within the historical trading range.