Jefferies upgrades Shell to 'buy', cites potential from BG deal

(ShareCast News) - Jefferies upgraded Royal Dutch Shell to 'buy' from 'hold' but cut its price target to 2,150p from 2,220p.The broker said it still had reservations about the price of the BG acquisition. However, post-transaction it believes significant further value can be added through divestitures/share repurchases and further cost savings and synergies."We expect the combined entity to have amongst the most resilient cash cycles within the sector at a wide range of oil prices," Jefferies explained.The bank said it may be early with this upgrade, at least on an absolute basis. It estimates that the oil market remains oversupplied by about 1.3 million barrels per day in the third quarter and said oil prices could weaken further."Hence oil equities could face further headwinds in the near term," analysts at the American broker added.Nonetheless, they added that at these relative valuation levels, Shell has become compelling.In addition, they said the oil price had reached a level that was not sustainable over the medium-term."An oil price recovery over the coming 18 months would coincide well with the progress we would expect to see from Shell/BG corporate integration. This is when we believe absolute outperformance will occur."At 1116 BST, Shell shares were down 2.5% at 1,649.50p.