Morgan Stanley has set a new 1,180p price target (current price: 994p), up from 991p.
Moreover, analyst Martijn Rats highlights that sector-wide the oil majors performed better than expected during the third quarter against a challenging backdrop, in which share prices have dropped by around 8%.
Rats noted that important uncertainties remain for both the short and long term, and, not all companies face the same risks.
But, the analyst highlighted that for the first time in a while he can argue that Shell offers greater than 20% of potential share price upside.
“Shell’s new financial framework and dividend policy send a strong signal about management’s confidence in the firm’s cash generating ability.
“With a dividend yield of 5.4% and new guidance for annual dividend growth of 4%, Shell shares offer a steady-state total return of around 9.4% per year.”
Morgan Stanley meanwhile upgrades BP to an ‘equal weight’ rating up from ‘underweight’.
“Our Underweight rating for BP was driven by its uncertain earnings and cash flow outlook – even if its strategy is successful – and lack of dividend growth prospects. Following underperformance and its yield expanding to 8.1%, we suspect these factors are also discounted,” the analyst said.