Morgan Stanley has moved Royal Dutch Shell into an Overweight stance and lifted its price target to 3,780 pence, citing clearer production visibility and potential for an acceleration in dividend payouts. The decision was made as part of the brokerage’s annual assessment of upstream assets across Europe’s largest integrated energy companies, led by analyst Martijn Rats.
The review found a notable improvement in the energy sector’s production growth outlook. Analysts now say they have bottom-up visibility on production through 2032 for Europe’s "Big Five," an extension from 2030 in last year’s review. On an aggregate basis, oil and gas production among the group is now forecast to expand at a 2.9% compound annual rate from 2025 to 2030, up from an estimated 1.2% per year in the prior edition.
In the case of Shell, Morgan Stanley’s team contends that the market’s valuation has been constrained more by the company’s dividend policy than by operational fundamentals. The analysts describe Shell as the sector’s "most compelling risk/reward" opportunity and have elevated it to a top pick, assigning a 15% total shareholder return target.
"We see meaningful dividend per share (DPS) acceleration after underlying improvements to the business in recent years," the analysts wrote. Their projections show Shell’s annual DPS growth rate rising to approximately 10% each year into the early 2030s, a step-up from the near 4% growth pace observed since 2023.
The upgrade reflects several internal and external considerations cited by the team: available headroom within Shell’s financial framework; growing confidence in the company’s future cash flows under CEO Wael Sawan; and a pattern of buybacks that, despite being executed, have "not re-rated the shares meaningfully." These factors together are seen as increasing the probability that management will pivot toward a quicker cadence of dividend increases.
Morgan Stanley maintained an Overweight rating on BP as well, arguing the company is on track to "significantly outperform its own target for balance sheet de-gearing." The analysts noted BP pairs an attractive valuation with an improved upstream outlook and a suite of potential catalysts that could support upside.
Galp was singled out for its long-term production visibility. The analysts observed that Galp provides investors with sustained production longevity anchored in high-quality offshore assets, while a downstream corporate reorganization is underway.
Among peers, Eni was identified as having the strongest upstream growth profile, with production projected to rise by 4.5% to 2030. By contrast, Equinor was judged to face the largest headwinds, with production forecast to decline by 18% by 2035 relative to 2025 levels.
For the sector as a whole, Morgan Stanley assigned an In-Line rating. The brokerage pointed to uncertainty over how ongoing conflicts in the Middle East and Eastern Europe may influence commodity prices and inflation, but argued that the energy sector’s diversification merits it remaining at least an in-line weight within broad, generalist portfolios.