The downgrade follows Shell’s quarterly results, which were out last week.
“Recent quarterly results have come in below our expectations,” Morgan Stanley analysts said in a note.
“FCF and gearing are still set to improve but no longer in a differentiated manner. Dividend growth is now lagging peers, and the buyback has started but at a lower-than-expected pace.
“We feel our overweight case is no longer supported.”
Morgan Stanley also downgraded its price target, to 2,860p from 3,160p.
The analysts added: “The improvement process that Shell has put in motion is not complete yet.
“However, following two disappointing quarters, we have lowered our expectations.”