Fortune.com: Is Shell Ready to Rebound? "Forget Iraq and Iran," says Gheit. "Royal Dutch/Shell needs a regime change." (ShellNews.net)

With the price of oil sky-high, analyst Fadel Gheit says patient investors can strike big gains on the beaten-down shares of Royal Dutch.

By Nelson D. Schwartz

From 9 August 04 issue

Right now Royal Dutch/Shell Group is the oil company Wall Street loves to hate. The reason, of course, is that its managers misled the public about the size of its reserves, prompting the resignation of the CEO and other top execs earlier this year. But with the price of oil sky-high, analyst Fadel Gheit of Oppenheimer says patient investors can strike big gains on the beaten-down shares of Royal Dutch (RD, $50), which owns 60% of the company (Shell Transport & Trading owns the rest).

Lost amid the headlines is the fact that Royal Dutch/Shell still has tremendous assets. Even after cutting its reserve estimate by nearly 25%, it boasts the third-largest oil and gas supply of any private Western oil company. And it looks inexpensive: While Exxon Mobil trades at 17.3 times next year's earnings and BP has a 15.1 multiple, Royal Dutch's P/E is just 13.7. Plus its 3.7% dividend yield towers above the payouts of its peers.

Royal Dutch still needs to make some changes—like untangling its byzantine dual board structure. It could also hire an outsider as CEO—someone who might impose greater organizational and financial discipline. "Forget Iraq and Iran," says Gheit. "Royal Dutch/Shell needs a regime change." Even so, he believes Royal Dutch shares could reach $62 within 12 months, a 22% premium over the current price.

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