Will Royal Dutch Shell See Rising Prices?

With shares of Royal Dutch Shell (NYSE:RDSA) trading around $68, 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 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 fuel 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.

Just recently, Royal Dutch Shell appointed new CEO Ben van Beurden, after Peter Voser decided to leave the company. Ben van Beurden was a surprise choice, since several other executives were said to be in line 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 is not generating enough returns. Also, the company recently reported a rise in production in Brazil. Royal Dutch Shell said that the firm and its partners are expecting to boost production, with two new deepwater projects in the country.

T = Technicals on the Stock Chart are Strong

Royal Dutch Shell stock has been fairly stagnant over the last few years.  The stock is now trading near the top of a range that extends back several years. Analyzing the price trend and its strength can be done using key simple moving averages.

What are the key moving averages? They are 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 slightly above its key averages, which signal neutral to bullish 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

16.68%

3%

1%

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

Put IV Skew

Call IV Skew

August Options

Flat

Average

September Options

Flat

Average

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

On the next page, let’s take a look at the earnings and revenue growth rates, and what that means for Royal Dutch Shell’s stock.

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 can 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 revenue figures over the last four quarters. Earnings reactions are not available for Royal Dutch Shell.

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 the overall sector?

Royal Dutch Shell

Exxon Mobil

Chevron

BP

Sector

Year-to-Date Return

-1.17%

9.58%

17.57%

3.75%

6.48%

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

Conclusion

Royal Dutch Shell is an oil and gas giant that has operations all around the world. A new CEO, as well as a boost in production in Brazil, may be what the company needs to improve. The stock has not done much in recent years, and is now trading near the top of a multi-year range. Over the last four quarters, earnings and revenue figures have been mixed for the company. Relative to its peers and sector, Royal Dutch Shell has been a poor year-to-date performer. WAIT AND SEE what the new CEO and new pipelines bring to the company.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.