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Shell share price on the back foot ahead of Q4/FY results

Shell has seen its shares rebound from the October 2020 low, and with a better outlook for the oil price can the rally continue?

Shell Source: Bloomberg

When does Shell report earnings?

Shell reports fourth quarter (Q4) and full-year earnings on 4 February.

Shell earnings – what does the City expect?

Shell is expected to report an 80.6% decline in headline earnings per share (EPS), to 7.2 cents, while revenue falls 34.5% to $55 billion.

The group comes into earnings having seen a sharp pullback in its shares from the £15 peak in the first half of January, which itself denoted the high watermark of the rally from the end of October, which took the price from a multi-year low of £9 to £15. BP’s results this week underlined how tough a year it was for the oil and gas sector, rocked by a collapse in demand and a surge in supply. It would be hard to imagine a worse year, and for now the auguries for 2021 appear promising. Vaccines are being distributed and employed to defeat the virus, with a continuing expectation that the global economy will return to something resembling normality at some point this year.

Investors need to ask themselves whether Shell’s outlook can justify the gains in the shares since November, and whether sufficient discount has been factored in following the 15% fall in the share price over the past three weeks. 2020 was a very difficult year, and it is unlikely that 2021 will be just as bad or worse. Oil demand is recovering, and promises to keep rising over time as economies reopen.

How to trade Shell’s earnings

Shell has beaten estimates for headline earnings in six of the past eight updates, but missed on revenue by the same amount. Of the 26 analysts covering the stock, 17 have ‘buy’ ratings, with eight ‘holds’ and just one sell. The current median price target of £17.32 represents a 38% upside to the current price of £12.97.

The average move on results day is 4.3%, but current pricing points towards a 4.8% move.

Shell share price – technical analysis

Shell’s January peak at £15.16 will provide satisfaction to many technical analysts, since it marks the level at which the March rally and the rebound in May last year both stalled. The price found support in late December around £12.95, before continuing to rally.

The recent 15% pullback has seen the price move back to this level, which may provide support once again. Further declines below £12.70 point towards a test of the 200-day simple moving average (SMA) - currently at £12.22, and would put further pressure on the rebound. If the price can hold support then a move back towards £15, and potentially higher.

Shell chart Source: ProRealTime
Shell chart Source: ProRealTime

Shell puts the past behind it

For the oil majors, the hope is that the worst is over, although it has to be said that hope is not a strategy. Nonetheless, a difficult year is now over, and with oil at a 12-month high and likely to keep rising there is an argument that Shell and other big oil firms are in a much better place financially, and the rally since the end of October reflects this. The dividend of 3.9% remains attractive, and is now much more secure thanks to the recovery in oil prices. While the chart currently gives reason for caution, a recovery in the post-November uptrend could help provide an additional reason to be more confident about Shell from an investing perspective.

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