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Can Shell (RDS.A) Spring a Surprise This Earnings Season?

Royal Dutch Shell plc RDS.A is set to release third-quarter 2017 results before the opening bell on Nov 2.

In the preceding three-month period, The Hague-based supermajor reported better-than-expected results on the back of rebounding oil prices, robust refining operations and successful cost-containment efforts.

Shell has surpassed earnings estimates in three of the last four quarters, with an average of 2.02%.

Royal Dutch Shell PLC Price and EPS Surprise


Royal Dutch Shell PLC Price and EPS Surprise | Royal Dutch Shell PLC Quote

Let’s see how things are shaping up for this announcement.

Which Way are Estimates Treading?

Let’s look at the estimate revisions in order to get a clear picture of what analysts are thinking about the company before earnings release.

The Zacks Consensus Estimate for the current quarter earnings has been revised upward by a cent over the last 30 days. Further, the Zacks Consensus Estimate for 2017 earnings has also moved higher by 2 cents over the last 30 days.

Factors to Consider

Shell’s $50-billion buyout of BG Group has boosted its strong and diversified portfolio of global energy businesses that offers attractive long-term growth opportunities.

The upstream segment of Shell is poised to benefit from recovering commodity prices and improvement in international markets. Price of oil at the end of the third quarter was $51.67 per barrel, up about 10.5% sequentially amid tightening supplies, improving demand outlook and OPEC deal extension talks. 

We also appreciate the company’s cost-reduction initiatives and efficiency gains.Last quarter, Shell raked in $12,157 million in free cash flow as against a loss of $3,158 million a year ago. If the trend continues, it could strengthen the financials and earnings of the company. Lower costs and improving refining margins are expected to impact the downstream segment of the company positively.

However, though the company’s upstream segment is likely to benefit from higher price realization in the quarter, we remain a bit concerned of Shell’s oil and gas production volumes. The company saw its second-quarter oil and gas production decline 11% sequentially. Lately, Shell has entered into various divestment deals to reduce debts. Although these deals have strengthened the credit metrics of the company, it might affect the volume growth of the company adversely. We also remain concerned of the estimated capital expenditure of the company for 2017, which stands at $25 billion. This could put some pressure on the financials of shell.

Share Performance

Shares of Europe’s largest oil company, Shell — which counts Exxon Mobil Corporation XOM, Chevron Corporation CVX and BP plc BP as its peers among others — have rallied13.9% during the third quarter outperforming the industry’s 9.5% gain.


Earnings Whispers

Our proven model does not conclusively show that Shell will beat estimates this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to be able to beat consensus estimates. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

That is not the case here as you will see below.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is 0.00%. This is because the Most Accurate estimate and the Zacks Consensus Estimate are both pegged at 83 cents.

Zacks Rank: Shell currently carries a Zacks Rank #3.  You can see the complete list of today’s Zacks #1 Rank stocks here.

Though a Zacks Rank #3 increases the predictive power of ESP, 0.00% ESP makes surprise prediction difficult.

Conversely, we caution against Sell-rated stocks (Zacks Ranks #4 and 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

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