In the preceding three-month period, The Hague-based supermajor delivered a 39.78% negative earnings surprise amid a plunge in commodity prices. This was partially offset by strong refining profitability and higher production. 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 $35 and $45 per barrel during the entire fourth quarter (Oct to Dec) 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 fourth 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. In a trading update issued last month, Shell predicted fourth quarter output of 3,000 thousand oil-equivalent barrels per day. This is down from the year-ago level of 3,213 thousand oil-equivalent barrels per day. Worryingly, the Anglo-Dutch behemoth’s downstream profits are likely to remain unchanged. Normally, refining margins benefit from lower input costs. However, warmer-than-normal weather restricted fourth quarter fuel demand, resulting in stockpile glut and weighing on prices of heating oil and diesel. 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 59 cents. Zacks Rank: Royal Dutch Shell’s Zacks Rank #5 (Strong Sell) further decreases the predictive power of ESP, making us less confident of an earnings surprise call. As it is, 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: Matrix Service Co. MTRX has an Earnings ESP of +13.16% and a Zacks Rank #2. The company is expected to release earnings on Feb 3. Unit Corp. UNT has an Earnings ESP of +33.33% and a Zacks Rank #2. The company is anticipated to release earnings on Feb 23. Transocean Ltd. RIG has an Earnings ESP of +22.54% and a Zacks Rank #2. The company is likely to release earnings on Feb 24. 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 MATRIX SERVICE (MTRX): Free Stock Analysis Report UNIT CORP (UNT): Free Stock Analysis Report ROYAL DTCH SH-A (RDS.A): Free Stock Analysis Report TRANSOCEAN LTD (RIG): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research
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