The Shell share price gains after bumper Q1! Have I missed my chance?

The Shell share price made moderate gains on 2 May after the energy giant smashed profit estimates by 18.5%. Dr James Fox takes a closer look.

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After a set of bumper results, released on 2 May, the Shell (LSE:SHEL) share price made some moderate gains. These gains were perhaps less than I’d expected given the size of the headline earnings beat.

Analysts expected Shell to register $6.5bn of adjusted earnings during the first quarter, but the reality was 18.5% stronger — $7.7bn.

Let’s take a closer look at Shell and whether the stock still offers good value.

Average target price

When I’m trying to work out how much a stock should be worth, I often start by looking at the average share price target. This is the consensus figure of all the analysts covering the stock.

The average Shell share price target is currently 11.5% above the current price. That’s clearly a good sign, although it’s worth noting that British stocks tend to trade at a discount to their target prices simply because investor sentiment isn’t that strong.

On another positive note, Shell has seven Buy ratings, four Outperform ratings, and four Hold ratings.

Will Q1 change this?

It’s important to remember that City and Wall Street analysts aren’t continuously updating forecasts for the stocks they cover. That’s especially the case with smaller-cap stocks. As such, it’s often useful to discard share price targets that are more than three months old.

So, will Shell’s Q1 impact these share price targets? I’d suggest so, but perhaps not massively. For one, there was nothing outstanding in its forward guidance, and there was continuity in the buyback programme.

Management announced it would repurchase another $3.5bn of shares in the second quarter. But this matches the buybacks of the previous two quarters, so it’s unlikely to influence share price forecasts much.

By reducing available shares, buybacks increase the relative value of remaining shares, potentially driving the price up.

Have I missed my chance to buy?

The share price, as with its peers in the energy sector, rises and falls on oil prices. It can be volatile. This can make finding an entry point a little challenging. I’ve actually been looking for one for some time as I’m bullish on oil over the long run.

In a world where competition for hydrocarbons is increasing, and where demand may continue to grow, primarily due to more demand coming on-line in developing countries, I’d expect oil prices to be higher for longer. And it’s not just me who thinks this way.

Personally, I believe Shell is among the most attractive investment opportunities of the Big Six oil majors. It’s cheaper than its US peers, has less debt than BP, and is more productive than Total and Eni. I also appreciate that it’s undertaking a transformation programme to reduce the value gap between itself and its US peers — which trade at much higher multiples.

However, I’m still waiting for an entry point I’m happy with.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

James Fox has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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