Shell, Hess tapped as top big energy stocks at Wells Fargo

Shell (NYSE:SHEL) +2.4% and Hess (NYSE:HES) +1.1% in Monday’s trading as Wells Fargo names the companies as its top picks within the integrated oil and international E&P coverage, respectively, expecting the oil and gas sector will deliver positive returns in 2025 through spending discipline, even with a lackluster oil price forecast.

Despite the bank’s muted oil price outlook, Wells Fargo analysts led by Roger Read believe Shell (SHEL) could still generate substantial free cash flow relative to its CFFO generation through 2026 (65%-70% conversion).

Shell (SHEL) did narrow the valuation discount to its U.S. peers during past two years, as coming in light on capital spending and heavy on CFFO is typically a solid recipe for earning investors’ appreciation, Read writes, adding that if the company can continue to execute on its operational and financial performance, the valuation discount to its U.S. peers can continue to narrow.

Read’s positive view of Hess (HES) remains underpinned by the company’s position in the very remarkable exploration results and ongoing developments in Guyana, a region “without peer within the industry in terms of resource, cost to develop, benign environment and stable political backdrop.”

If commodity prices turn out stronger than expected, Hess’ (HES) cash returns to shareholders could exceed its peers in 2025 and beyond, the analyst says.

More broadly, most IOCs and international E&Ps have established stated cash return goals for 2025, and Read and his team anticipate cash payouts of more than 30% as common across the sector next year.

Wells Fargo also maintains Overweight ratings on Chevron (CVX), ConocoPhillips (COP), Exxon Mobil (XOM) and Suncor Energy (SU).