Energy markets are changing as supply gaps meet a sudden shift in global tensions. On Friday, TD Cowen analyst Jason Gabelman, rated 5-star on TipRanks, maintained his positive outlook on Shell (SHEL), though he adjusted his expectations for the stock’s near-term peak.
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While the firm remains bullish on the oil giant’s long-term value, Gabelman lowered his price target from $112 to $110. This small trim follows a complex week where falling gas volumes from the Middle East have clashed with a massive shift in the company’s cash flow.
Supply Gaps Create a Stronger for Longer Gas Market
TD Cowen believes that natural gas companies are entering a lucrative multi-year window. Gabelman’s report highlights a stronger for longer dynamic for gas-weighted stocks, noting that prices must stay high to encourage new drilling.
In today’s report, Gabelman stated, “We see a high degree of likelihood that gas can sustain over $4 per thousand cubic feet (Mcf) long term and $5/Mcf in 2026.” For Shell, this translates into a powerful cash engine. The analyst estimates that this pricing environment could lead to “over 16% free cash flow (FCF) yields in 2026.” Essentially, Shell is positioned to generate massive amounts of cash even as it faces operational hurdles.
Gas Production Hits a Qatari Roadblock
The cautious price target adjustment comes after Shell’s recent trading update revealed significant production hurdles. Due to volume disruptions in Qatar caused by recent Middle East conflicts, Shell has been forced to cut its gas production guidance.
The company’s integrated gas production outlook was lowered to a range of 880,000–920,000 boe/d, down from previous estimates that reached up to 980,000. Gabelman also noted a massive swing in liquidity, with working capital expected to see an outflow of “$10 to $15 billion” in the first quarter. While oil trading results have remained “significantly higher,” the drop in gas volumes is a temporary drag on the company’s momentum.
Shell’s Buyback Program Provides a Floor for the Stock
Gabelman believes Shell’s active buyback program provides a solid floor for the stock. Just this week, the company repurchased over 1.2 million shares for cancellation. Between the aggressive return of capital to shareholders and the sweet spot for natural gas prices, TD Cowen suggests that the recent dip in oil prices following the U.S.-Iran ceasefire is a buying opportunity rather than a reason to exit.
Is Shell a Good Stock to Buy Now?
Shell stock (SHEL) has a consensus Moderate Buy rating among 9 Wall Street analysts. This rating is based on five Buy and four Hold ratings issued in the last three months. The average 12-month SHEL price target of $96.67 implies 6.13% upside from current levels.
