Looking at Royal Dutch Shell plc’s (NYSE:RDS.A) earnings update in September 2017, analysts seem extremely confident, with profits predicted to ramp up by an impressive 53.09% next year, relative to the previous 5-year average growth rate of -26.41%. Currently with earnings of $4,575M, we can expect this to reach $7,004M by 2018. I will provide a brief commentary around the figures and analyst expectations in the near term. Readers that are interested in understanding RDS.A beyond these figures should research its fundamentals here. See our latest analysis for RDS.A
Exciting times ahead?
The 29 analysts covering RDS.A view its longer term outlook with a positive sentiment. Given that it becomes hard to forecast far into the future, broker analysts tend to project ahead roughly three years. I’ve plotted out each year’s earnings expectations and inserted a line of best fit to calculate an annual growth rate from the slope in order to understand the overall trajectory of RDS.A’s earnings growth over these next few years.
This results in an annual growth rate of 10.85% based on the most recent earnings level of $4,575M to the final forecast of $8,239M by 2020. This results in an EPS of $2.32 in the final year of forecast compared to the current $0.58 EPS today. Growth in the bottom line seems to suggest cost cutting activities, as revenues is expected to grow much slower than earnings. In 2020, RDS.A’s profit margin will have expanded from 1.96% to 2.70%.
Future outlook is only one aspect when you’re building an investment case for a stock. For Royal Dutch Shell, there are three pertinent factors you should further examine:
1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
2. Valuation: What is RDS.A worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether RDS.A is currently mispriced by the market.
3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of RDS.A? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.