In the preceding three-month period, The Hague-based supermajor delivered a 31.18% positive earnings surprise despite the challenges that a steep drop in oil price tagged along. The outperformance came on the back of strong refining profitability and lower spending. Importantly, Royal Dutch Shell has outpaced the Zacks Consensus Estimate in 3 of the past four quarters with an average beat of 15.78%. Let’s see how things are shaping up for this announcement. Factors to Consider This Quarter The West Texas Intermediate (WTI) crude futures hovered between $45 and $55 per barrel during the entire third quarter (Jul to Sep) on plentiful supplies and lackluster demand. Predictably, Shell’s upstream division has been able to extract less value for their products. This is sure to pressure the group’s third quarter profit margins, with liquids making up half of the company’s total volumes. Moreover, losses on the production front might further magnify the damage. During the second quarter, Shell’s total production of crude oil and natural gas fell 11% from the year-ago quarter level to 2,731 thousand oil-equivalent barrels per day. While natural gas volumes slumped 17.7%, crude oil output was down 4.5%. We expect the same for the to-be-reported-quarter as well. However, the Anglo-Dutch behemoth’s downstream results are likely to be strong again as refining margins are set to be robust on lower input costs. Significant fall in total expenses might also lent support to the result. Earnings Whispers Our proven model does not conclusively show that Royal Dutch 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. 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 both stand at 93 cents. Zacks Rank: Royal Dutch Shell has a Zacks Rank #3. Though a Zacks Rank #3 increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult. 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. Stocks to Consider While earnings beat looks uncertain for Royal Dutch Shell, here are some companies you may want to consider on the basis of our model, which shows that they have the right combination of elements to post an earnings beat this quarter: Exterran Partners LP EXLP has an Earnings ESP of +19.23% and a Zacks Rank #1. The company is expected to release earnings on Nov 3. Natural Gas Services Group Inc. NGS has an Earnings ESP of +21.05% and a Zacks Rank #1. The company is anticipated to release earnings on Nov 5. Swift Energy Co. SFY has an Earnings ESP of +11.11% and a Zacks Rank #2. The company is likely to release earnings on Nov 5. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >> Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report ROYAL DTCH SH-A (RDS.A): Free Stock Analysis Report SWIFT ENERGY CO (SFY): Free Stock Analysis Report EXTERRAN PTNRS (EXLP): Free Stock Analysis Report NATURAL GAS SVC (NGS): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research
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