Investing.com -- Saudi Aramco has gained a new supporter on Wall Street, with Jefferies initiating coverage of the stock with a Buy rating and a price target of SAR 32 per share, implying a 24% total shareholder return (TSR).
In its note, Jefferies highlights Aramco's unique position in the oil and gas sector, citing its strong influence over oil markets, low-cost base, and ability to maintain an attractive dividend yield, projected at 4.6% in 2025.
Jefferies views Saudi Aramco (TADAWUL:2222) as the top upstream business in the industry.
"Whether we look at costs, asset longevity, or cash flow break-evens, ARAMCO has the best asset base in the sector," the analysts write.
The company's production of around 10% of global crude supply, combined with its control of spare capacity equivalent to 3% of global demand, allows it to influence oil prices—a key advantage, particularly as the Saudi government focuses on maximizing revenue.
Despite market uncertainty surrounding oil demand and OPEC+ policies, Jefferies doesn't expect a significant upside beyond $80 per barrel for oil prices.
However, Aramco stands to benefit from volume increases, with the potential to increase output by up to 1 million barrels per day in 2025. The analysts also point out that Aramco's dividend policy is one of the most generous in the sector, and the company is well-positioned to maintain payouts even if macro conditions weaken.
While Aramco trades at a premium relative to its peers, Jefferies argues this is justified by the company's superior returns and asset longevity.
"At ~$55bn capex, ARAMCO will be able to cover its ordinary dividend down to a ~$70/bbl oil price," they note, underscoring the stock's appeal to investors seeking stability in the oil and gas sector.