Royal Dutch Shell plc (RDS.A – Free Report) now seems a solid bet for energy investors, based on strong fundamentals and compelling business prospects.
Its position as a major supplier of liquefied natural gas should further strengthen its long-term cash flow growth due to its attractive potential. Additionally, the integrated energy giant with a market capitalization of $ 156.6 billion is making solid progress toward transitioning to a renewable energy future.
Therefore, if you are still thinking about how to capitalize on this rise in stock prices, it is time to exploit the investment opportunity available to you.
Currently Zacks Rank # 2 (Buy) stock has jumped 55.9% in the past year compared to industry growth of 48.1%. The stock also far outpaced the Oil & Energy sector’s 42.8% rise and the S&P 500’s growth of 36.2%. You can see The full list of today’s Zacks # 1 Rank (Strong Buy) stocks here.
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What makes it a promising choice?
Stellar second trimester performance
Shell achieved better than expected profits in the second quarter of 2021, due to better realization of raw material prices.
The company reported earnings of $ 1.42 per share, beating Zacks’ consensus estimate of $ 1.31.
Northward estimate revisions
The direction of estimate revisions serves as a key indicator when it comes to stock price performance. Zacks’ consensus estimate for Shell earnings in the third quarter of 2021 has been revised up 16.8% in the past 60 days. Profit estimates for 2021 moved 8.6% north during the same period.
History of positive earnings surprise
This The Hague, Netherlands-based company has a decent surprise track record. Its profits have beaten Zacks’ consensus estimate in three of the previous four quarters and missed the mark on one occasion, the average beat being 117.76%.
Solid balance sheet
During the second quarter of 2021, Shell announced the launch of a $ 2 billion share repurchase program to be completed by the end of 2021. This reflects the continued improvement in earnings and cash flow of society through higher crude oil achievements and a recovery in consumption. . The company’s debt-to-capitalization ratio at the end of the second quarter was 27.7%, improving from 32.7% three months ago.
Growth factors
Shell became the world’s largest producer of liquefied natural gas (or LNG) following the acquisition of BG.
As demand for LNG is likely to increase significantly in the short and medium term thanks to the high consumption of Asian importers such as China, India, South Korea and Pakistan, Shell’s position as a major supplier of LNG should help the company meet the growing demand for LNG. demand fuel and help improve their cash flow.
Shell has accumulated a huge debt to finance the buyout of BG. The company currently has over $ 100 billion in debt (including short-term debt). However, management is looking to slow down through large asset divestitures.
Shell’s green initiatives are still ongoing. While it became the first oil company to link executive pay to carbon emissions to fight climate change, it recently embarked on a wave of revolving acquisitions. Shell has collaborated with IONITY, New Motion, First Utility and Silicon Ranch with the goal of diversifying its portfolio beyond oil and gas.
The company’s transactions with battery storage supplier sonnen and solar developer Cleantech further underscore its growing shift to low-carbon fuels. In addition, it expects its net carbon intensity to decrease by 6-8% in 2023 compared to the 2016 baseline. In addition, the reduction will drop to 20% in 2030, 45% in 2035 and 100% d ‘by 2050.
Efforts that yield results
Following the collapse in oil prices, Shell reduced its 2020 capital spending by 28% from the figure released a year ago. Over the past year, it has cut operating expenses by an additional $ 3.5 billion. These cost-cutting measures have helped Shell generate free cash flow of $ 20.8 billion, even in a year as volatile as 2020.
The company followed it with $ 17.4 billion in free cash flow in the first half of 2021. Plus, its current ratio of 1.32 is pretty healthy and is backed by $ 42.9 billion in cash. and cash equivalents. Moody’s has assigned the company an investment grade rating of Aa2, which equates to low borrowing costs.
Other key choices
Some other leading players in the energy field are Devon Energy Corporation (DVN – Free report), Cabot Oil and Gas Company (TOOTH – Free report) and Continental Resources, Inc. (CLR – Free Report), each currently displaying a Zacks Rank # 1.
Devon Energy is expected to experience 9.32% profit growth in 2021.
Cabot Oil & Gas is expected to see profit growth of 218.52% in 2021.
Continental is expected to experience earnings growth of 435.9% in 2021.