It's shaping up to be a tough period for Royal Dutch Shell plc (AMS:RDSA), which a week ago released some disappointing quarterly results that could have a notable impact on how the market views the stock. Earnings fell badly short of analyst estimates, with US$60b revenues missing by 14%, and statutory earnings per share (EPS) of US$1.95 falling short of forecasts by some -13%. This is an important time for investors, as they can track a company's performance in its report, look at what experts are forecasting for next year, and see if there has been any change to expectations for the business. So we gathered the latest post-earnings forecasts to see what estimates suggest is in store for next year.
Following the recent earnings report, the consensus from 19 analysts covering Royal Dutch Shell is for revenues of US$229.3b in 2020, implying a stressful 29% decline in sales compared to the last 12 months. Statutory earnings per share are forecast to crater 58% to US$0.52 in the same period. Yet prior to the latest earnings, the analysts had been anticipated revenues of US$233.8b and earnings per share (EPS) of US$0.35 in 2020. Although the revenue estimates have not really changed, we can see there's been a sizeable expansion in earnings per share expectations, suggesting that the analysts have become more bullish after the latest result.
The consensus price target was unchanged at US$22.99, implying that the improved earnings outlook is not expected to have a long term impact on value creation for shareholders. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. The most optimistic Royal Dutch Shell analyst has a price target of US$33.59 per share, while the most pessimistic values it at US$9.45. With such a wide range in price targets, analysts are almost certainly betting on widely divergent outcomes in the underlying business. As a result it might not be a great idea to make decisions based on the consensus price target, which is after all just an average of this wide range of estimates.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Royal Dutch Shell's past performance and to peers in the same industry. We would highlight that sales are expected to reverse, with the forecast 29% revenue decline a notable change from historical growth of 5.8% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 6.8% annually for the foreseeable future. It's pretty clear that Royal Dutch Shell's revenues are expected to perform substantially worse than the wider industry.
The Bottom Line
The biggest takeaway for us is the consensus earnings per share upgrade, which suggests a clear improvement in sentiment around Royal Dutch Shell's earnings potential next year. Fortunately, the analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations - although our data does suggest that Royal Dutch Shell's revenues are expected to perform worse than the wider industry. The consensus price target held steady at US$22.99, with the latest estimates not enough to have an impact on their price targets.
With that said, the long-term trajectory of the company's earnings is a lot more important than next year. At Simply Wall St, we have a full range of analyst estimates for Royal Dutch Shell going out to 2024, and you can see them free on our platform here..
Don't forget that there may still be risks. For instance, we've identified 3 warning signs for Royal Dutch Shell that you should be aware of.
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