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28 Sep, Wednesday
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Bull Trader USA

Royal Dutch Shell Trades at a Significant Discount to U.S. Peers. The Stock Is One of Barron’s Top Picks for 2022.

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Jeff J Mitchell/Getty Images

This article is an excerpt from Barron’s 10 favorite stocks for 2022. To see the full list, click here.

Energy supplies could be tight and prices high for years. Royal Dutch Shell (ticker: RDS.B) stands to capitalize as one of the world’s top energy operations. It trades at a significant discount to its U.S. peers,  Exxon Mobil  (XOM) and  Chevron  (CVX).

Shell’s U.S.-listed shares trade around $43, just seven times projected 2022 earnings, against a price/earnings ratio of 11 for Exxon and 12 for Chevron. Shell yields 3.9%, less than Exxon or Chevron. Shell, however, has a conservative payout ratio at about 30%, after a sharp dividend cut in 2020.

Shell is “one of the cheapest large-cap stocks in the world,” wrote activist investor Dan Loeb of Third Point, which has taken a stake.

Its best business may be the world’s largest liquefied natural-gas operations, which requires only modest annual capital expenditures.

Loeb’s push for a breakup of Shell looks like a long shot, but it’s possible that the company will take public a part of the world’s biggest network of service stations.

Bernstein analyst Oswald Clint praised the energy giant’s recent move to simplify its corporate structure by domiciling in the United Kingdom and collapsing its two share classes into one. Clint sees the company’s stock buybacks ramping up in 2022 and has a price target of $63 on the American depositary receipts.

Shell’s discount to its U.S. rivals reflects the intense pressure in Europe to scale back its oil and gas operations. That remains a risk, but Shell is committed to its core business.

Company / Ticker
Recent Price
YTD Change
2021E EPS
2022E EPS
2022E P/E
Dividend Yield
Market Value (bil)
Amazon.com / AMZN
$3,377.42
4%
$41.11
$51.37
65.7
None
$1,713
AT&T / T
23.71
-18
3.38
3.17
7.5
8.8%
169
Berkshire Hathaway / BRK.A
454,550.00
31
17,466.30
18,928.50
24.0
None
673
General Motors / GM
58.39
40
6.73
6.93
8.4
None
85
Hertz Global Holdings / HTZ
21.01
-22*
4.02
2.55
8.2
None
10
IBM / IBM
125.93
5
10.05
11.04
11.4
5.2
113
Johnson & Johnson / JNJ
173.01
10
9.83
10.38
16.7
2.5
455
Nordstrom / JWN**
20.05
-36
1.27
1.99
10.1
None
3
Royal Dutch Shell / RDS.B
42.82
27
4.86
6.19
6.9
3.9
166
Visa / V***
214.37
-2
5.91A
7.04
30.5
0.7
467

*Since July 1. **Estimates for Jan. 2022 and Jan. 2023 fiscal year ends. ***Sept. fiscal year end. E=estimate. A=actual.

Source: FactSet

Write to Andrew Bary at andrew.bary@barrons.com

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