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Shell Stock Tanks 7% on Earnings: CFRA Downgrades It


Aug. 2 2019, Published 11:30 a.m. ET

Shell stock (RDS.A) (RDS.B) declined 7% on August 1, its earnings release day. After its earnings, CFRA downgraded Shell stock and cut its price target. Also, Credit Suisse reduced its price target on Shell stock.

Shell’s earnings fell to a two-year low in the second quarter. Plus, its earnings per share were significantly lower than Wall Street analysts’ mean estimate.

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Analysts react adversely to Shell’s earnings

Shell stock faced adverse reactions from analysts after its earnings release. As a result, CFRA downgraded Shell stock from “buy” to “hold.” Also, the firm cut its price target on Shell stock (RDS.A) from 32 euros per share (or about $71 per ADS) to 29 euros per share (or about $64 per ADS).

Moreover, Credit Suisse lowered its price target on Shell stock from 3,090 pence per share (or about $75 per ADS) to 3,010 pence per share (or about $73 per ADS). Shell stock’s mean price target stands at $81, which implies 37% gains from the current level. The higher gains reflect the steep fall in Shell stock on its earnings day.

Analysts reacted negatively to Shell’s results due to a sharp decline in its earnings. Shell’s earnings slumped across segments, which we will discuss below. The main reason for this performance was lower oil, natural gas, and LNG (liquefied natural gas) prices and weaker refining and chemical margins. Plus, the company underwent a series of planned and unplanned maintenance activities affecting its overall operations.

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In the company’s second-quarter earnings call, Shell’s CEO, Ben Van Beurden, said, “The macro conditions of these businesses are cyclical in nature, and we have seen this type of decline and subsequent recovery before in oil and gas but also in refining and chemicals margins. Our strength is the ability to see the macro headwinds and respond appropriately.”

Shell stock slumps on earnings

On August 1, Shell stock fell 6.5%, higher than its peers and the equity market. On the day, WTI (West Texas Intermediate), the benchmark crude oil, fell 7.9%. The SPDR S&P 500 ETF (SPY), which resembles the S&P 500 Index, fell 0.9% on August 1. To learn more, please read Trump Says He Saved the US Economy from ‘A Great Recession’.

BP (BP) and Total SA (TOT) stocks fell 1.9% and 1.6%, respectively, on August 1. While BP’s earnings surpassed analysts’ estimate, Total’s earnings missed the analyst’s estimate.

ExxonMobil (XOM) and Chevron (CVX) stocks fell 2.6% and 1.9% on the day, respectively. ExxonMobil and Chevron are expected to post their second-quarter results on August 2. To learn more, read Will Chevron Outperform ExxonMobil in Q2?

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Weaker earnings impacted Shell stock

An across-the-segment fall in earnings impacted Shell stock. In the second quarter, Shell’s adjusted earnings fell 25% YoY to $3.6 billion. Shell’s integrated gas earnings fell 25% YoY to $1.7 billion in the second quarter.

Shell’s Upstream earnings fell 8% YoY to $1.4 billion in the second quarter as lower realizations impacted the company’s profits in both segments. Also, Shell’s liquid and natural gas realizations fell 8% YoY and 13% YoY in the quarter.

In the second quarter, the Integrated Gas segment’s hydrocarbon production fell 2.8% YoY to 0.93 MMboepd (million barrels of oil equivalent per day). The hydrocarbon output fell due to divestments and the transfer of the Salym asset to the Upstream segment.

However, the Upstream segment’s hydrocarbon production rose 6.8% YoY to 2.66 MMboepd due to higher production in North America. Overall, Shell’s total hydrocarbon production rose 4.1% YoY to 3.58 MMboepd in the second quarter.

Shell restructures its portfolio

In the second quarter, Shell continued to restructure its portfolio with divestment and capex. The company completed the sale of its 22.5% stake in the Caesar Tonga asset to Equinor (EQNR) for $965 million. Plus, Shell agreed to sell its Martinez refinery to PBF Energy (PBF).

Shell’s capital investment rose 10% YoY to $6.3 billion in the second quarter. In the quarter, Shell began production at its mega project Appomattox ahead of schedule and 40% below the budget set in 2015. The project is expected to produce 175,000 boepd (barrels of oil equivalent per day).

Shell dispatched its first LNG shipment from its Prelude FLNG project. Plus, the company took the final investment decision to proceed with the Mero 2 FPSO (floating production, storage, and offloading) vessel in Brazil.


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