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Shell vs. BP: Which is a Better Buy Ahead of Q4 Earnings?
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Oil prices are possibly experiencing their best phase in several years at present. A confluence of factors has made this possible, including the fall in the dollar’s value, consistent declines in inventories and the extension of the agreement between OPEC countries and Russia to limit production.
Now, JPMorgan Chase & Co. (JPM - Free Report) analysts have raised their price forecasts for oil for the current year. The banking major now believes that Brent crude will touch $70 a barrel while U.S. crude will average $65.63 a barrel in 2018. This increase in projections is based on the assumption that global demand for energy will rise substantially over the current year.
Additionally, projected Q4 earnings growth for Energy is the highest of all sectors, with total earnings expected to be up 186.5% from the same period last year on 25.2% higher revenues. Excluding the Energy sector, total Q4 earnings for the rest of the S&P 500 index would be up 8.9%. (Read: Facebook, Apple, Google and Amazon's Q4 Earnings)
With Royal Dutch Shell plc and BP plc (BP - Free Report) scheduled to report on Feb 1 and Feb 6, respectively, this may be a good time to consider which of these is a better stock. While BP has a Zacks Rank #2 (Buy), Shell has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Other major stocks reporting earnings early in February include Apple Inc. (AAPL - Free Report) and Alphabet Inc. (GOOGL - Free Report) .
Price Performance
When considering price performance over the last one year, BP has gained 20.5%, higher than the broader industry’s 18.3% increase over the same period. On the other hand, Shell has gained 30.2% over this period, which exceeds both BP’s and the broader industry’s performance.
Current Ratio
This metric measures the ability of a company to meet short-term debt obligations. In other words, it is the ratio of the current level of total assets and expresses to that of the current level of liabilities. Here, Shell is a clear winner with a current ratio of 1.23, which is superior to the industry average of 1.14 as well as BP’s reading of 1.18.
Return on Assets
Examining earnings per share alone would not generate any significant insights when determining the level of profitability for capital intensive industries such as oil and gas. Return on assets (ROA) is a ratio that reveals how efficiently an energy company is utilizing its assets to generate profits.
Currently, Shell holds total assets of $267.6 billion while BP has total assets of around $134 billion. Our research shows that the average trailing 12-month ROA for Shell stands at 3.13%, higher than the broader industry and BP, which have ROA values of 3.08 and 1.68, respectively.
Dividend Yield
In the past year, the dividend yield for both Shell and BP was higher than the broader industry. The industry has an average dividend yield of 3.5%, lower than 5.5% for BP and 4.5% for Shell. Hence, on a comparable basis, BP shareholders earned a better dividend yield than Shell.
Valuation
Compared with the S&P 500, the broader industry is undervalued. This implies that the industry has the potential to gain in the near future. The industry has an average trailing 12-month EV/EBITDA ratio – one of the best multiples for valuing oil and gas companies because these energy firms have a large amount of debt and EV (Enterprise Value) includes the parameter – of 7.25, which is below the S&P 500 average of 12.72. Hence, it might be a good idea to invest in stocks belonging to this industry.
Both Shell and BP are overvalued than the industry, but only just. Moreover, since BP and Shell have EV/EBITDA ratios of 7.54 and 7.63, respectively, there is little to choose from between them.
Earnings History, ESP and Estimate Revisions
When considering Earnings ESP, there is hardly any difference, since both BP and Shell have ESP values of 0.00%. The situation is similar when comparing the increase in earnings estimates over the last 30 days. While Shell’s estimate has increased by 4.2% over this period, BP is only marginally better off on this count since its estimate has increased by 4.4%.
Considering a more comprehensive earnings history, both BP and Shell have delivered positive surprises in three of the trailing four quarters. However, BP has a superior average earnings surprise of 26.8% compared with Shell’s figure of -0.87%.
However, a more nuanced examination of the last four quarters of earnings performances reveals a different story. BP seems to be ahead on the earnings surprise stakes due to massive positive second-quarter earnings surprise of 90.9%. However, a drastic decline occurred in the third quarter, when this metric has slowed down to a mere 14%.
Meanwhile, most of Shell’s troubles on this count are due to previous year’s disastrous fourth-quarter performance, when it suffered from a negative earnings surprise of -38.9%. Since then, the oil supermajor has turned things around steadily, matching estimates in this year’s first quarter and then showing steady improvement, from 17.3% to 18.1% over the last two quarters.
Conclusion
Our comparative analysis shows that BP has an edge over Shell when considering dividend yields. There is also little to choose among the two stocks when comparing valuations, estimate revisions and ESP values. Moreover, Shell is ahead when considering price performance, current ratio and return on assets.
A more nuanced look at their earnings surprise history also reveals that Shell owes much of its weakness on this front to a disastrous fourth quarter last year. Since then, it has shown steady and predictable improvement. Meanwhile, BP’s fortunes seem volatile, with earnings surprise suffering a considerable decline from the second to the third quarter.
In conclusion, one has to consider that Shell has a superior Zacks Rank #1 and has delivered steady beats over the last two quarters. This is why it may be a good idea to bet on Shell over BP as these prepare to report earnings over the next few days.
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Shell vs. BP: Which is a Better Buy Ahead of Q4 Earnings?
Oil prices are possibly experiencing their best phase in several years at present. A confluence of factors has made this possible, including the fall in the dollar’s value, consistent declines in inventories and the extension of the agreement between OPEC countries and Russia to limit production.
Now, JPMorgan Chase & Co. (JPM - Free Report) analysts have raised their price forecasts for oil for the current year. The banking major now believes that Brent crude will touch $70 a barrel while U.S. crude will average $65.63 a barrel in 2018. This increase in projections is based on the assumption that global demand for energy will rise substantially over the current year.
Additionally, projected Q4 earnings growth for Energy is the highest of all sectors, with total earnings expected to be up 186.5% from the same period last year on 25.2% higher revenues. Excluding the Energy sector, total Q4 earnings for the rest of the S&P 500 index would be up 8.9%. (Read: Facebook, Apple, Google and Amazon's Q4 Earnings)
With Royal Dutch Shell plc and BP plc (BP - Free Report) scheduled to report on Feb 1 and Feb 6, respectively, this may be a good time to consider which of these is a better stock. While BP has a Zacks Rank #2 (Buy), Shell has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Other major stocks reporting earnings early in February include Apple Inc. (AAPL - Free Report) and Alphabet Inc. (GOOGL - Free Report) .
Price Performance
When considering price performance over the last one year, BP has gained 20.5%, higher than the broader industry’s 18.3% increase over the same period. On the other hand, Shell has gained 30.2% over this period, which exceeds both BP’s and the broader industry’s performance.
Current Ratio
This metric measures the ability of a company to meet short-term debt obligations. In other words, it is the ratio of the current level of total assets and expresses to that of the current level of liabilities. Here, Shell is a clear winner with a current ratio of 1.23, which is superior to the industry average of 1.14 as well as BP’s reading of 1.18.
Return on Assets
Examining earnings per share alone would not generate any significant insights when determining the level of profitability for capital intensive industries such as oil and gas. Return on assets (ROA) is a ratio that reveals how efficiently an energy company is utilizing its assets to generate profits.
Currently, Shell holds total assets of $267.6 billion while BP has total assets of around $134 billion. Our research shows that the average trailing 12-month ROA for Shell stands at 3.13%, higher than the broader industry and BP, which have ROA values of 3.08 and 1.68, respectively.
Dividend Yield
In the past year, the dividend yield for both Shell and BP was higher than the broader industry. The industry has an average dividend yield of 3.5%, lower than 5.5% for BP and 4.5% for Shell. Hence, on a comparable basis, BP shareholders earned a better dividend yield than Shell.
Valuation
Compared with the S&P 500, the broader industry is undervalued. This implies that the industry has the potential to gain in the near future. The industry has an average trailing 12-month EV/EBITDA ratio – one of the best multiples for valuing oil and gas companies because these energy firms have a large amount of debt and EV (Enterprise Value) includes the parameter – of 7.25, which is below the S&P 500 average of 12.72. Hence, it might be a good idea to invest in stocks belonging to this industry.
Both Shell and BP are overvalued than the industry, but only just. Moreover, since BP and Shell have EV/EBITDA ratios of 7.54 and 7.63, respectively, there is little to choose from between them.
Earnings History, ESP and Estimate Revisions
When considering Earnings ESP, there is hardly any difference, since both BP and Shell have ESP values of 0.00%. The situation is similar when comparing the increase in earnings estimates over the last 30 days. While Shell’s estimate has increased by 4.2% over this period, BP is only marginally better off on this count since its estimate has increased by 4.4%.
Considering a more comprehensive earnings history, both BP and Shell have delivered positive surprises in three of the trailing four quarters. However, BP has a superior average earnings surprise of 26.8% compared with Shell’s figure of -0.87%.
However, a more nuanced examination of the last four quarters of earnings performances reveals a different story. BP seems to be ahead on the earnings surprise stakes due to massive positive second-quarter earnings surprise of 90.9%. However, a drastic decline occurred in the third quarter, when this metric has slowed down to a mere 14%.
Meanwhile, most of Shell’s troubles on this count are due to previous year’s disastrous fourth-quarter performance, when it suffered from a negative earnings surprise of -38.9%. Since then, the oil supermajor has turned things around steadily, matching estimates in this year’s first quarter and then showing steady improvement, from 17.3% to 18.1% over the last two quarters.
Conclusion
Our comparative analysis shows that BP has an edge over Shell when considering dividend yields. There is also little to choose among the two stocks when comparing valuations, estimate revisions and ESP values. Moreover, Shell is ahead when considering price performance, current ratio and return on assets.
A more nuanced look at their earnings surprise history also reveals that Shell owes much of its weakness on this front to a disastrous fourth quarter last year. Since then, it has shown steady and predictable improvement. Meanwhile, BP’s fortunes seem volatile, with earnings surprise suffering a considerable decline from the second to the third quarter.
In conclusion, one has to consider that Shell has a superior Zacks Rank #1 and has delivered steady beats over the last two quarters. This is why it may be a good idea to bet on Shell over BP as these prepare to report earnings over the next few days.
Don’t Even Think About Buying Bitcoin Until You Read This
The most popular cryptocurrency skyrocketed last year, giving some investors the chance to bank 20X returns or even more. Those gains, however, came with serious volatility and risk. Bitcoin sank 25% or more 3 times in 2017.
Zacks’ has just released a new Special Report to help readers capitalize on the explosive profit potential of Bitcoin and the other cryptocurrencies with significantly less volatility than buying them directly.
See 4 crypto-related stocks now >>