Analysts at UBS Global Research upgraded Shell (LON:) and Repsol (OTC:) to buy and downgraded Eni to neutral.
Shell’s rating upgrade is driven by its strong free cash flow outlook and effective cost management.
UBS notes Shell’s low breakeven oil price of $36 per barrel and industry-leading free cash flow yield of 14%.
Analysts believe the company’s strong balance sheet and potential for additional cost savings will allow Shell to meet or exceed its 2025 financial targets.
These factors, coupled with the prospect of a narrowing valuation gap with US peers, support Shell’s positive rating.
Repsol’s rating improvement is driven by expected positive surprises in cash flow generation and shareholder returns.
UBS attributes this optimism to strong refining margins and stable oil and gas prices.
Repsol’s strong balance sheet allows it to support strong returns to shareholders, including a forecast distribution yield of 14%.
Analysts also note Repsol’s ability to move to low-carbon investments faster than some competitors, which contributes to its favorable outlook.
Conversely, Eni’s downgrade to Neutral reflects limited room for positive surprises and reduced potential for earnings growth and share repurchases.
UBS notes that Eni shares are currently trading at a premium to the long-term average, suggesting better opportunities may exist elsewhere in the sector.
While Eni remains committed to its transition strategy, lower profitability in its chemicals and biofuels segments is weighing on its near-term prospects.
Shell and Repsol shares were up 1.8% and 2.4% at 05:44 ET (1044 GMT).