We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Energy Returns to Growth: Shell or BP, Which is a Better Pick?
Read MoreHide Full Article
The commodity market has remained volatile for the better part of 2017. However, over the past few months the market has started to stabilize with oil prices consistently trading at above the $55 a barrel mark. Recently the commodity has been trading at $60 per barrel — the highest mark since Jun 25, 2015. A number of factors have propelled this positivity. These include the OPEC-led production cut extension, lower inventory overhang and rising demand.
With recovering commodity price and successful cost-cut strategies various oil biggies have managed to successfully come out of the slump. In this context, we put the spotlight on two of the integrated supermajors— BP plc (BP - Free Report) and Royal Dutch Shell plc —with market caps of $134 billion and $267.6 billion, respectively. Since both stocks currently carry a Zacks Rank #3 (Hold), it will be interesting to see which stock is better positioned in terms of fundamentals.
Shell Beats on the Bourses
Year to date, both Shell and BP have surpassed the broader industry’s growth of 6.9% as well as S&P 500’s rally of 16.9%. However, Shell’s price gain of 21.9% has outshined BP’s rise of 12%.
Valuation
BP and Shell have P/E ratios of 30.43 and 21.33, respectively. Clearly, Shell is the cheaper proposition in comparison. Notably, while Shell is underpriced, BP is overpriced compared with the industry’s P/E ratio of 22.74.
Liquidity
The liquidity of a company is determined through quick ratio which is a more stringent test to measure the capability of a company to pay both short- and long-term obligations.
While both have better liquidity than the industry’s level of 0.73, Shell fares better than BP on this front. Shell has a liquidity ratio of 0.91, higher than Shell’s 0.81.
Leverage Ratio
While both the companies witness higher leverage metrics than the industry’s level of 25%, Shell carries a debt-to-capital ratio of 28.64%, lower than BP’s 36.23%. Consequently, Shell holds an edge over BP in this department as well.
Return on Capital (ROC)
Coming to Shell and BP, ROC for the trailing 12-months is 4.67% and 2.91%, respectively, which are below the industrial sector’s level of 4.77%.
Last Quarter Performance and Projections
Shell delivered impressive results in third-quarter 2017 wherein adjusted earnings per share not only surged 42.8% year over year to $1.00 but also breezed past the Zacks Consensus Estimate of 83 cents. Shell expects year-over year growth of 99.35% and 10.62% in its earnings in 2017 and 2018, respectively.
BP’s third-quarter fiscal 2017 earnings surged around 90% year over year to 57 cents per share, also surpassing the Zacks Consensus Estimate of 50 cents. BP expects year-over year growth of 119.28% and 31.32% in its earnings in 2017 and 2018, respectively.
In terms of long-term growth expectations also, BP scores way above Shell. The expected growth rate for BP for the next 3-5 years is 18.95% compared with an expected growth of 5% for Shell.
Buoyed by the strong results, BP has already commenced its share repurchase programs. Shell has also announced plans to buy back shares of at least $25 billion by the end of 2020.
Earnings Surprise History
Considering a more comprehensive earnings history, BP seems to be a clear winner. London-based BP delivered average positive earnings surprise of 26.80% in the trailing four quarters. However, the Anglo Dutch giant posted average negative earnings surprise of 0.87% in the same period.
Dividend Yield
Over a year, the dividend yield for BP has been higher than both the broader sector and Shell. While the broader sector offered a yield of 4.08%, BP returned 5.71%. In comparison, Shell has a dividend yield of 4.83%.
Post the robust quarterly result, BP was the first company to call off scrip dividend. Encouraged by the improving energy landscape, Shell also resumed payments of full cash dividends.
Cash Flow From operations
Over the last nine months, both companies reported a sharp year-over-year increase in cash flow from operating activities, which is a key metric to gauge the financial health of the firms. The companies generated enough cash to pay off debt along with funding capex and dividend payments.
BP generated operating cash flow of $13 billion in the first nine months of 2017 compared with $8.3 billion reported in the corresponding period of 2016. Shell generated cash flow from operations of $28.4 billion, up 148% from the $11.4 billion recorded in the corresponding period of 2016.Improvement in the underlying pattern of the cash flow emphasizes the strength of the integrated model of the super-majors.
Bottom Line
Our comparative analysis shows that Shell holds an edge over BP when considering share price performance, valuation, leverage, liquidity, ROC, dividend yield. BP scores on dividend yield, long term projections and earnings surprise history. On overall comparison, the scale is slightly tilted in favor of Shell.
However, we prefer to remain on the sidelines and ask investors to hold the stocks for now as reflected in their Zacks Rank currently.
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Image: Bigstock
Energy Returns to Growth: Shell or BP, Which is a Better Pick?
The commodity market has remained volatile for the better part of 2017. However, over the past few months the market has started to stabilize with oil prices consistently trading at above the $55 a barrel mark. Recently the commodity has been trading at $60 per barrel — the highest mark since Jun 25, 2015. A number of factors have propelled this positivity. These include the OPEC-led production cut extension, lower inventory overhang and rising demand.
With recovering commodity price and successful cost-cut strategies various oil biggies have managed to successfully come out of the slump. In this context, we put the spotlight on two of the integrated supermajors— BP plc (BP - Free Report) and Royal Dutch Shell plc —with market caps of $134 billion and $267.6 billion, respectively. Since both stocks currently carry a Zacks Rank #3 (Hold), it will be interesting to see which stock is better positioned in terms of fundamentals.
Shell Beats on the Bourses
Year to date, both Shell and BP have surpassed the broader industry’s growth of 6.9% as well as S&P 500’s rally of 16.9%. However, Shell’s price gain of 21.9% has outshined BP’s rise of 12%.
Valuation
BP and Shell have P/E ratios of 30.43 and 21.33, respectively. Clearly, Shell is the cheaper proposition in comparison. Notably, while Shell is underpriced, BP is overpriced compared with the industry’s P/E ratio of 22.74.
Liquidity
The liquidity of a company is determined through quick ratio which is a more stringent test to measure the capability of a company to pay both short- and long-term obligations.
While both have better liquidity than the industry’s level of 0.73, Shell fares better than BP on this front. Shell has a liquidity ratio of 0.91, higher than Shell’s 0.81.
Leverage Ratio
While both the companies witness higher leverage metrics than the industry’s level of 25%, Shell carries a debt-to-capital ratio of 28.64%, lower than BP’s 36.23%. Consequently, Shell holds an edge over BP in this department as well.
Return on Capital (ROC)
Coming to Shell and BP, ROC for the trailing 12-months is 4.67% and 2.91%, respectively, which are below the industrial sector’s level of 4.77%.
Last Quarter Performance and Projections
Shell delivered impressive results in third-quarter 2017 wherein adjusted earnings per share not only surged 42.8% year over year to $1.00 but also breezed past the Zacks Consensus Estimate of 83 cents. Shell expects year-over year growth of 99.35% and 10.62% in its earnings in 2017 and 2018, respectively.
BP’s third-quarter fiscal 2017 earnings surged around 90% year over year to 57 cents per share, also surpassing the Zacks Consensus Estimate of 50 cents. BP expects year-over year growth of 119.28% and 31.32% in its earnings in 2017 and 2018, respectively.
In terms of long-term growth expectations also, BP scores way above Shell. The expected growth rate for BP for the next 3-5 years is 18.95% compared with an expected growth of 5% for Shell.
Buoyed by the strong results, BP has already commenced its share repurchase programs. Shell has also announced plans to buy back shares of at least $25 billion by the end of 2020.
Earnings Surprise History
Considering a more comprehensive earnings history, BP seems to be a clear winner. London-based BP delivered average positive earnings surprise of 26.80% in the trailing four quarters. However, the Anglo Dutch giant posted average negative earnings surprise of 0.87% in the same period.
Dividend Yield
Over a year, the dividend yield for BP has been higher than both the broader sector and Shell. While the broader sector offered a yield of 4.08%, BP returned 5.71%. In comparison, Shell has a dividend yield of 4.83%.
Post the robust quarterly result, BP was the first company to call off scrip dividend. Encouraged by the improving energy landscape, Shell also resumed payments of full cash dividends.
Cash Flow From operations
Over the last nine months, both companies reported a sharp year-over-year increase in cash flow from operating activities, which is a key metric to gauge the financial health of the firms. The companies generated enough cash to pay off debt along with funding capex and dividend payments.
BP generated operating cash flow of $13 billion in the first nine months of 2017 compared with $8.3 billion reported in the corresponding period of 2016. Shell generated cash flow from operations of $28.4 billion, up 148% from the $11.4 billion recorded in the corresponding period of 2016.Improvement in the underlying pattern of the cash flow emphasizes the strength of the integrated model of the super-majors.
Bottom Line
Our comparative analysis shows that Shell holds an edge over BP when considering share price performance, valuation, leverage, liquidity, ROC, dividend yield. BP scores on dividend yield, long term projections and earnings surprise history. On overall comparison, the scale is slightly tilted in favor of Shell.
However, we prefer to remain on the sidelines and ask investors to hold the stocks for now as reflected in their Zacks Rank currently.
Some better-ranked stocks in the same industry are Statoil ASA and Chevron Corporation (CVX - Free Report) . While Statoil sports a Zacks Rank #1 (Strong Buy), Chevron carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Click here for the 6 trades >>