European investment bank Berenberg has lifted its profit forecasts and price targets for oil major Shell, following the company's third-quarter trading update. The move comes just days before Shell is due to publish its full quarterly earnings on October 29.
Berenberg raised its adjusted earnings per share (EPS) estimates for Shell by roughly 15% for 2026 and 2027, with a smaller increase for 2028. The bank said the company's underlying earnings outlook is stronger than it had previously modeled, reflecting improved expectations for Shell's core operations.
The bank also increased its price targets for Shell's shares listed in London and Amsterdam, signaling greater confidence in the stock's medium-term value. Price targets are an analyst's estimate of where a stock could trade in the future, often based on projected earnings and cash flows.
What's behind the upgrade?
Shell, one of the world's largest energy companies, operates across oil and gas production, refining, and trading. Its earnings are heavily influenced by global energy prices, refining margins, and the performance of its trading desks.
Berenberg's upgrade suggests that recent trading conditions have been more favorable than expected, particularly in areas like liquefied natural gas (LNG) and oil products. The bank's revised estimates imply that Shell's profit-generating capacity is set to improve over the next few years, even as the company continues to invest in lower-carbon businesses.
The timing is notable: Shell's third-quarter trading update, released earlier this month, gave investors a glimpse of how the quarter shaped up. Berenberg's response indicates that the update contained enough positive signals to warrant a more optimistic outlook.
Cash flow concerns remain
Not everything is rosy. Berenberg also projects that Shell's third-quarter operating cash flow will come in at $14.50 billion. That would be 19% higher than the same period last year, but 32% below the consensus forecast from Visible Alpha, a data provider that aggregates analyst estimates.
The shortfall is largely due to a cash outflow tied to working capital—the money tied up in day-to-day operations like inventory and receivables. Such swings are common in the energy sector, where commodity price movements can cause big quarterly variations in cash flow.
For investors, the gap between Berenberg's estimate and the broader consensus is a reminder that quarterly cash flow can be volatile. Even when earnings look strong, cash generation may not follow the same path, and that can affect dividends and share buybacks.
What it means for investors
For everyday investors, the key takeaway is that a respected bank sees Shell's profit potential improving over the medium term. Higher EPS estimates often translate into higher expected dividends and buybacks, which are central to Shell's investment case.
However, the cash flow forecast suggests that the upcoming third-quarter report might not be as clean as some hope. If actual cash flow falls short of consensus, the stock could see short-term volatility.
Shell's shares are widely held by income-focused investors, as the company has a strong track record of returning cash to shareholders. The upcoming earnings report on October 29 will be the next major catalyst, and investors will be watching both the headline profit numbers and the cash flow details.
Berenberg's move also comes amid a broader reassessment of oil majors. For instance, BP earnings forecasts have risen on a higher Brent price outlook, suggesting that the sector is seeing improved sentiment. Similarly, Aditya Birla Renewables is seeking $1.5B in rupee loans for a deal involving Shell India, highlighting ongoing activity in the energy space.
Investors should also keep an eye on how Shell's cash flow compares to its capital spending and shareholder returns. A strong earnings outlook is positive, but sustainable cash generation is what ultimately supports dividends and buybacks.
As always, analyst upgrades are just one piece of the puzzle. They reflect one firm's view, and actual results can differ. The October 29 report will provide the definitive picture of Shell's third-quarter performance.
