Royal Dutch Shell: Will a New CEO Boost the Stock?

With shares of Royal Dutch Shell (NYSE:RDSA) trading around $64, is RDSA an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Royal Dutch Shell plc operates as an independent oil and gas company worldwide. The company explores and extracts crude oil, natural gas, and natural gas liquids. It also converts natural gas to liquids to provide fuels and other products as well as engages in manufacturing, supplying, and shipping crude oil. The company holds interests in approximately 30 refineries; 1,500 storage tanks; and 150 distribution facilities.

Royal Dutch Shell has unexpectedly appointed a new CEO, naming Refining Chief Ben van Beurden to the post after Peter Voser decided to leave the company. Van Beurden was a surprise choice as observers of the company had several other executives in mind for the job. Analysts believe that the new CEO choice shows that the company will renew its focus on operations amid criticism that the company isn’t generating enough returns. As energy products take the center stage around the world, look for this new CEO to prove his worth for the company.

T = Technicals on the Stock Chart are Weak

Royal Dutch Shell stock has seen its fair share of struggles over the last several years. The stock is now trading near lows for the year as energy companies continue to see little progress. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Royal Dutch Shell is trading below its key averages which signal neutral to bearish price action in the near-term.

RDSA

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Royal Dutch Shell options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Royal Dutch Shell Options

17.39%

33%

31%

What does this mean? This means that investors or traders are buying a minimal amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

July Options

Steep

Average

August Options

Steep

Average

As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a minimal amount of call and put option contracts and are leaning neutral to bearish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Royal Dutch Shell’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Royal Dutch Shell look like and more importantly, how did the markets like these numbers?

2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

-7.86%

1.82%

1.79%

-53.24%

Revenue Growth (Y-O-Y)

-6.67%

2.92%

-8.36%

-3.75%

Earnings Reaction

N/A

N/A

N/A

N/A

Royal Dutch Shell has seen mixed earnings and mostly declining revenue figures over the last four quarters. Earnings reactions are not available for the last four quarters.

P = Weak Relative Performance Versus Peers and Sector

How has Royal Dutch Shell stock done relative to its peers, Exxon Mobil (NYSE:XOM), Chevron (NYSE:CVX), BP (NYSE:BP), and sector?

Royal Dutch Shell

Exxon Mobil

Chevron

BP

Sector

Year-to-Date Return

-6.96%

6.89%

13.70%

-0.36%

5.43%

Royal Dutch Shell has been a relative weak performer, year-to-date.

Conclusion

Royal Dutch Shell is an oil and gas company that operates worldwide. The company has just announced a new CEO that is bringing a different vision with him. The stock is trading near lows for the year but a new CEO may be the catalyst that the stock needs. Over the last four quarters, earnings have been mixed while revenue figures have been declining. Relative to its peers and sector, Royal Dutch Shell has been a weak year-to-date performer. WAIT AND SEE what this new CEO does for the company.

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