Shell (LON:SHEL) and Repsol (OTC:REPYY) have been upgraded to "buy" by analysts at UBS Global Research analysts, while Eni has been downgraded to a "neutral" rating.
Shell's upgrade is driven by its robust free cash flow outlook and efficient cost management.
UBS flags Shell's low dividend breakeven oil price of $36 per barrel and its sector-leading free cash flow yield of 14%.
Analysts believe the company's strong balance sheet and the potential for additional cost savings position Shell well to meet or surpass its 2025 financial targets.
These factors, combined with the prospect of narrowing the valuation gap with U.S. peers, underpin Shell’s positive rating.
Repsol's improved rating stems from anticipated positive surprises in cash flow generation and shareholder returns.
UBS attributes this optimism to healthy refining margins and the steady oil and gas price environment.
Repsol’s strong balance sheet allows it to sustain high shareholder returns, including a projected 14% distribution yield.
Analysts also note Repsol's ability to transition to low-carbon investments more swiftly than some peers, contributing to its favorable outlook.
Conversely, Eni's downgrade to "neutral" reflects limited opportunities for positive surprises and a reduced upside potential in earnings and buybacks.
UBS points out that Eni's shares currently trade at a premium to the long-term average, suggesting better opportunities may exist elsewhere in the sector.
While Eni remains committed to its transition strategies, weaker margins in its chemical and biofuel segments weigh on its near-term outlook.
Shares of Shell and Repsol were up 1.8% and 2.4% at 05:44 ET (10:44 GMT).