Shell Q2 preview: where next for Shell shares?
Joshua Warner July 28, 2021 9:41 AM
Royal Dutch Shell shares are in play ahead of its quarterly results on Thursday, with investors hoping the company has slashed enough of its debt to pave the way for dividends and buybacks to be reintroduced.
When will Shell release its Q2 earnings?
Royal Dutch Shell will release second-quarter earnings on Thursday July 29.
Shell Q2 earnings preview: what to expect from the results
Dividends and buybacks will take centre stage when Shell releases results. The oil and gas giant surprised the markets earlier this year when it said it was rapidly cutting net debt down toward its $65 billion target which, when hit, will pave the way for distributions to be made to shareholders once again after being suspended during the pandemic.
Markets are expecting Shell to have achieved that goal in the last three months considering it ended March with $71.3 billion in net debt and trimmed a sizeable $4 billion off that burden in the first quarter.
This is further supported by the fact market conditions have improved markedly since then, with the reopening of the economy spurring oil prices higher. Brent started 2021 at just $51 a barrel and had jumped to over $63 by the end of March. Oil trades at almost $74 a barrel today after peaking as high as $77 earlier this month.
Once that $65 billion net debt target is achieved, Shell intends to start returning 20% to 30% of cashflow from operations to shareholders through a progressive dividend policy supplemented with share buybacks. It is expected to return the bulk of cash through buybacks because they offer more flexibility and it will help avoid setting the bar too high as it kicks off a new progressive policy designed to grow each year.
Analysts are expecting revenue in the second quarter to come in at $66.3 billion. That would be more than double the $32.5 billion reported the year before and a steady improvement from the $55.6 billion delivered in the first quarter of 2021.
A company-compiled consensus estimates adjusted earnings will rise to $5.07 billion from $638 million the year before and $3.23 billion in the prior quarter. A Reuters-compiled consensus places expectations marginally higher at $5.10 billion.
Where next for the Shell share price?
After breaking lower pre-pandemic, from a high of 2342.6 on January 6, 2020 to a low of 889.8 on March 19, 2020, RDS bounced back to 1542.4 on April 1, 2020. Since then, the price hasn’t been able to do much, as the stock has been trading within that band since then.
In addition, the price has been in an even tighter range between 1200 and 1542.4 since early December 2020! This stock is in dire need of a catalyst to break out of the range.
Short-term horizonal resistance is on July 6 highs of 1474.4, followed by the range highs at 1542.4. First resistance above the range is at the 50% retracement level from the January 6, 2020 highs to the March 19, 2020 lows at 1616.2. First support is just below at the 200 Day Moving Average near 1308.6, followed by the bottom of the near-term range at 1200. If the price breaks below the range, horizontal support is at 997.8.
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