Shell Q4 earnings preview: Where next for Shell stock?

When will Shell release Q4 earnings?

Shell will release fourth quarter and full year earnings on the morning of Thursday February 2. They will be released to the market at 0700 GMT.

Shell Q4 earnings consensus

Analysts forecast Shell will report a 20% year-on-year rise in fourth quarter sales to $102.0 billion and quarterly adjusted earnings are expected to surge 41% to $9.0 billion. 

If achieved, this puts Shell on course to report a 48% rise in annual revenue to $386.6 billion while adjusted earnings are set to double to $38.7 billion.

Shell Q4 earnings preview

Oil and energy stocks were the standout performers in what was a tough year for most companies in 2022. Elevated oil and gas prices, driven by the disruption caused to energy markets from the war in Ukraine and the ostracization of Russian supplies, saw profits spike to record all-time highs. That also led to significantly higher cashflow which filtered through to investors through higher dividends and share buybacks. Unsurprisingly, this has led to oil stocks, including Shell, significantly outperforming the wider market since the start of 2022.

We will see adjusted earnings ease in the fourth quarter from the peak we saw in mid-2022 as prices have softened somewhat, but they will remain strong enough to round off a year of record profits for Shell.

The question for investors is how much money will be returned by Shell, and whether the company and its share price can keep up the momentum in 2023 as commodity prices and inflation ease.

Cashflow from operations is expected to more than double from the year before in the fourth quarter to $17.5 billion. Free cashflow is forecast to exceed $9.0 billion. This means it will have generated more than enough to cover the $5.5 billion of anticipated dividends and share buybacks. That has sparked hopes that strong cash generation could lead Shell to lift shareholder returns again. Any lift is likely to be made to the buyback, which are one-off in nature, rather than to the dividend, which companies try to grow steadily each year. Shell’s last buyback programme is worth $4 billion and should have been completed before the end of 2022, leaving scope for it to be expanded or for a new one to be launched. Shell has already said it plans to raise its dividend by 15% in the fourth quarter.

Annual returns should hit their highest level in three years in 2022 as a whole, according to the consensus, driven by progressive growth in the dividend since being reset when the pandemic hit in 2020 and the significant rise in buybacks in 2022. However, markets believe shareholders will receive less in 2023 as fewer shares are repurchased.

(Source: Bloomberg)

We have seen mixed decisions from other oil majors on this front considering Chevron trebled its buyback programme to $75 billion last week, while Exxon Mobil told investors they wouldn’t be receiving any extra returns despite celebrating record profits and strong cashflow when it released annual results this week.

Although oil majors are flush with cash, there are reasons to be more cautious about how much is being returned to investors now that we are in 2023. The industry is facing increased political pressure and being blamed for not doing more to help lower prices and help fight the cost-of-living crisis, leading to windfall taxes and criticism over how much shareholders are being sprayed with cash. Shell has already said it expects to pay around $2.4 billion in windfall taxes in the UK and the EU in 2022, equal to around 6% of forecasted earnings.

Plus, while revenue and profits will remain high compared to historic levels in 2023, they are forecast to struggle as they come up against the record comparatives from last year. Ultimately, it will be much more difficult to deliver sales and earnings growth. Analysts currently believe Shell will see revenue drop 4% in 2023 and that adjusted earnings will fall over 15%.

(Source: Bloomberg)

That will lead some to ponder whether 2022 was the peak for oil stocks and that they could find things more difficult this year. Still, they appear to offer attractive returns and boast more favourable prospects than most other stocks that are bracing for another tough year in 2023.

Where next for the Shell share price?

Shell shares have found it more difficult to climb after losing some steam since hitting three-year highs at the start of November, but the stock is continuing to follow a supportive uptrend that can be traced all the way back to July 2021.

This supportive line has been largely tracking the 200-day moving average for years, suggesting we could see the price fall toward 2,274p if it comes under any renewed pressure. Any move below this critical floor opens the door to a fall below 2,240p. The 50-day and 100-day moving averages could provide earlier levels of support.

On the upside, the stock needs to break above 2,446p to reclaim the peak we saw in both June 2022 and more recently this January. This needs to be taken in order to bring that three-year high of 2,557p back into play. Notably, the 24 brokers that cover Shell see even greater upside potential with their average target price currently sat at 3,111p, showing they believe there is over 32% potential upside from current levels and that it can hit new all-time record highs in the next 12 months.

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