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Goldman Sachs’ Henry Tarr reiterated a Buy rating on Royal Dutch Shell plc (ADR) (NYSE: RDS-A), while raising the price target from €23.50 to €27.50 and adding the stock to Goldman Sachs’ Conviction Buy List.

Dividend Yield

Tarr mentioned that the company had the highest dividend yield for 2016 in Goldman Sachs’ coverage, although this was likely to decline due to significant growth in dividend cash coverage over the next 12 months, driven by cost cutting, increased capital discipline, disposals, synergy realization and rising oil prices.

The analyst also mentioned that the acquisition of BG Group plc (ADR) (OTC: BRGYY) was expected to provide “near-term volume growth in Brazil and further opportunity to invest in high-quality barrels low on the cost curve.”

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The acquisition was also likely to lead to enhanced capital efficiency and greater project selection discipline, driving capex down further in 2017–18.

Stock Catalysts

Tarr believes that there were four primary drivers of stock outperformance, including the 1Q16 results and the June strategist day providing evidence of “further capital flexibility, synergies and operating cost saving.”

Other catalysts include the successful execution of Shell’s disposal program, continuing long-term supply contracts in the LNG market, “ensuring profitability in integrated gas, particularly if the oil price moves higher,” as well as oil price recovery.

Latest Ratings for RDS.A

Nov 2017Societe GeneraleDowngradesBuyHold

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