Shell (SHEL) has delivered strong returns in recent years through heavy share buybacks and capital discipline but the impact of this approach is waning as investor focus shifts toward portfolio strength and growth, RBC Capital Markets said in a note Monday.

The brokerage said Shell has been a preferred European energy stock, supported by disciplined capital allocation and a strong balance sheet that allowed for substantial share repurchases.

However, RBC noted that investor attention is moving away from near-term shareholder returns toward the strength and sustainability of the company's portfolio. Across the sector, buybacks are increasingly being funded through balance sheets rather than organic cash generation.

Shell's emphasis on buybacks has reduced its share count by more than 25% since the pandemic, supporting earnings-per-share growth. Yet the company's valuation multiple has not expanded relative to peers, limiting its flexibility to use equity for acquisitions and complicating potential M&A transactions.

Shell's focus on share buybacks has cut its share count by more than 25% since the pandemic and boosted its earnings per share. However, its valuation multiple has not risen relative to peers, which could constrain its ability to use equity for acquisitions and complicate future M&A deals.

A continuation of the 'more of the same' strategy could still support earnings per share growth over time but the gains may be smaller.

The investment firm added that while Shell's balance sheet is stronger than many peers, it is already above its targeted 40% to 50% cash flow from operations payout ratio. The buyback program is expected to gradually decline through 2026, according to the note.

RBC downgraded Shell to sector perform from outperform and lowered its price target to 32 British pounds ($43.85) from 36 pounds.

Price: 73.74, Change: -0.02, Percent Change: -0.02