Why Jefferies Is Downgrading Royal Dutch Shell

In a report published Tuesday, analysts at Jefferies downgraded Royal Dutch Shell plc (NYSE: RDS-A) from Buy to Hold, while lowering the price target from 2450p to 2200p. The analysts believe that it could be difficult for the company to outperform over the next 18 months, following its acquisition of BG Group plc. "We believe Shell paid a full price that constrains its financial flexibility – the primary driver of our previous view that Shell was the most defensive stock in the sector if oil prices remain low," the analysts explained. At the same time, the analysts also believe that once the integration is complete, the deal could drive growth for Shell. According to Jefferies, the acquisition will significantly enhance the asset base for the company's deepwater, LNG and Growth Priorities. With the completion of the transaction, Shell will become the leading foreign oil player in Brazil, while its LNG position will increase by approximately 33 percent. "The deal makes eminent sense strategically – and when a transaction is pushed from a strategic angle, keep your hand on your wallet," the analysts added.