Shell Q4 preview: Where next for SHEL stock?

Josh Warner
By :  ,  Market Analyst

When will Shell release Q4 earnings?

Shell will publish fourth quarter earnings on the morning of Thursday February 3.

 

Shell Q4 earning preview

Analysts forecast Shell will report a rise in adjusted earnings to $6.27 billion in the fourth quarter, according to consensus numbers from Bloomberg. That would be up from $4.13 billion in the previous quarter and the $393 million delivered the year before.

We can see that this will be driven by significant improvements in earnings from integrated gas and its upstream unit that produces oil, with both set to benefit from higher output compared to the last quarter combined with higher prices. This is set to be countered by weaker quarter-on-quarter earnings from its oil products and chemicals divisions.

Adjusted Earnings ($, mns)

Q3 2021

Q4 2021E

Q4 2020

Integrated Gas

1,680

2,701

1,109

Upstream

1,686

3,275

(747)

Oil Products

1,212

880.9

541

- Refining & Trading

(3)

-414.5

(287)

- Marketing

1,215

997.6

828

Chemicals

395

188.6

381

 

Additional numbers from Reuters suggest adjusted Ebitda (which Shell refers to as CCS earnings) will climb to $17.81 billion from $13.46 billion in the third quarter and $7.91 billion the year before.

Cashflow from operations including working capital is expected to total $12.97 billion in the quarter. That would be more than double the $6.28 billion delivered a year ago but down from the $16.03 billion booked in the previous quarter. This is always closely-watched by investors considering it underpins the level of returns Shell makes to shareholders, with 20% to 30% of operating cashflow being funnelled back to investors through distributions.

Shell returned $1 billion to shareholders through buybacks in the third quarter and said it intended to return another $1 billion in the fourth. Having roughly returned around $1 billion per quarter during 2021, investors are hoping these will accelerate in 2022, especially as oil prices have climbed to new highs, with Brent surpassing the $90 mark for the first time since 2014 this week. Gas prices have also soared higher since the start of the new year.

Importantly, Shell has already committed to returning an additional $5.5 billion to investors in ‘early 2022’ after completing the sale of its assets in the Permian basin in the US to ConocoPhillips at the start of December. Shell said it planned to return the funds ‘at pace’.

Analysts at Bloomberg believe Shell’s decision last year to combine its A and B shares into a single share structure, which began trading at the end of January, will be beneficial as it should provide a larger pool of shares for buybacks. That decision was made around the same time the company formally changed its name to Shell PLC from Royal Dutch Shell PLC.

 

Where next for the Shell share price?

Shell shares have been trending higher since December 20 and last week hit their highest level in 23 months at 1,945p, which acted as a ceiling for the stock and attracted sellers back into the market. That is supported by the fact the RSI has tested overbought territory in the past week as that level of resistance was hit.

If it can break above that ceiling, with the RSI technically still bullish, then the initial target is the level of support seen throughout the first half of February 2020 at 1,963p. A move above here would be more significant as it brings post-pandemic highs of 2,141p, which acted as a level of support seen in late 2019, into view.

If the current ceiling holds, we could see Shell shares fall toward the 2022-low of 1,733p before targeting the 50-day sma at 1,706p and then the 100-day at 1,678p. The stock has rarely and only very briefly slipped below the 200-day sma over the past 15 months, so this should hold as the ultimate floor for the stock at 1,550p.

Shell shares climb higher as oil and gas prices rise

 

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