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Is Shell Well Placed with Expected Earnings Growth in 2019?


Jun. 11 2019, Updated 2:59 p.m. ET

Shell’s growth estimate

Royal Dutch Shell (RDS.A) is expected to post the second-best rise in its earnings in 2019, following Suncor Energy (SU). Wall Street analysts expect Suncor’s EPS to rise 26% in 2019.

In comparison, peers Chevron (CVX), BP (BP), and ExxonMobil (XOM) are expected to see 3%, 8%, and 18% falls in their EPS, respectively, in the year.

Shell’s EPS are expected to rise 8% to $5.5 in 2019. In 2018, Shell’s adjusted EPS (per American depositary receipt) stood at $5.1. Shell is expected to post EPS of $1.2 in the second quarter of 2019, up ~7% year-over-year. Higher upstream volumes and operational efficiencies are expected to drive its earnings growth.

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Shell has a strong upstream project pipeline that’s expected to bring in production growth until 2020. Several of its key upstream projects have already begun, including deepwater projects in the Gulf of Mexico and Brazil, conventional oil and gas projects such as Clair Phase 2 and Kashagan, and integrated gas projects such as Prelude.

Shell also expects its megaproject Appomattox to start up this year. The Permian region will add more volumes to the company’s overall production. In 2019, Shell’s projects are expected to add a new net output of more than 300,000 barrels of oil equivalent per day.

Shell’s robust strategy, strong upstream portfolio, and critical Downstream segment are expected to support its earnings growth.

Valuations and dividends

Shell is trading at a forward PE of 10.5x, below the peer average of 12.1x. Shell’s dividend yield stands at 6.0%, above the peer average of 5.1%. Shell also plans to buy back shares worth ~$25 billion by 2020 to share the benefits of its higher earnings and cash flows with its shareholders.

Overall, Shell seems well placed. It has the second-best growth estimate among its peers, a high dividend yield, increasing shareholder returns, and lower valuations.


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