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Business Week Online: S&P Cuts Royal Dutch Shell ADRs to Hold from Buy

Analyst Tina Vital says the company faces higher costs.
Royal Dutch Shell (RDS.A ) : Cuts to 3 STARS (hold) from 4 STARS (buy)

Analyst: Tina Vital
Based on valuation, we are lowering our opinion on the American Depositary Receipts (ADS) of Royal Dutch Shell to hold. While the fourth quarter current cost of supplies (CCS) earnings rose by 3.4% to $5.4 billion, or $1.64 per ADS, it missed our estimate by 31 cents on increased costs and narrowed marketing and chemical margins. Hydrocarbon production fell 8.8% on Gulf storm losses; we expect growth of 2 to 3% in 2006 and 2007. We are reducing our 2006 operating earnings estimate per ADS by $2.06 to $6.00, and 2007's by $2.09 to $5.75. We are lowering our 12-month target by $3 to $70 per ADS, a discount to peers.

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