Shell stock forecast: an optimistic outlook ahead?

Shell’s outlook was boosted by resilient results in Q2 2021, but recovery is still slower than expected in Q3


The Shell stock forecast was shaken to the core by the coronavirus pandemic, with the company posting an unprecedented loss of $22bn (£15.9bn) in 2020 as demand for oil dried up.

Dire Shell stock predictions followed as the company embarked on a series of painful cost-cutting measures and warned that “significant uncertainty” was likely to continue for some time.

Results for the first and second quarters of 2021 signalled a strong recovery for Shell, but lower-than-expected third quarter results left many analysts underwhelmed. So what will happen to the Shell stock price now? How will this impact the Shell stock forecast 2021?

Although the Covid-19 pandemic is far from over, with new variants of the virus still emerging, Shell’s promising Q2 results suggested that demand for oil is strengthening – especially as vaccines continue to be rolled out successfully across the globe.

However, results for Q3 were less than promising. Analysts had expected Shell’s adjusted earnings to come in at almost $6bn, but the company instead posted adjusted earnings of just $4.1bn. 

Here, we’ll give you the latest Shell stock analysis, diving into the latest figures and trying to examine what could happen next.

Shell stock price reacts after upbeat results in Q2

When it updated investors on 29 July, Shell announced that it had generated adjusted earnings of $5.5bn, up from $3.2bn in Q1. As during the first quarter, this resilient performance was a result of the oil giant’s ability to capitalise on rising commodity prices. 

Earlier this year, Royal Dutch Shell announced that it would only increase shareholder distributions once net debt had been reduced to $65bn. This quarter, the company managed to cut net debt by another $5bn, from $71.3bn to $65.7bn.

To the delight of Shell investors who were left reeling after dividends were cut for the first time since World War Two in April 2020, dividends were rebased to €0.24 ($0.28) per share. This was an increase of more than 38% from the first quarter.

In response to the dividend increase, the company’s CEO said

“We are stepping up our shareholder distributions today, increasing dividends and starting share buybacks, while we continue to invest for the future of energy. The quality of Shell’s operational and financial delivery and strengthened balance sheet have given the Board confidence to rebase the dividend per share from Q2 2021 onwards to 24 US cents. We are also launching $2 billion of share buybacks, which is targeted to be completed by the end of this year.” Ben van Beurden, CEO, Royal Dutch Shell

With promising results, let’s look at factors that may impact the Shell share price forecast. 

Q3 and weaker-than-expected earnings

Shell reported $4.1bn in adjusted earnings for the three months through to the end of September, well below the $6bn figure many analysts had expected. 

Reasons cited for the shortfall included the cost of supplies adjustment – attributable to Royal Dutch Shell plc shareholders for the third quarter 2021 as a negative $0.5bn – and Hurricane Ida significantly disrupting operations, with an aggregate adverse impact of around $0.4 billion on Adjusted Earnings.

Powering Progress strategy

The company’s Powering Progress strategy appears to be a key tenet in ensuring Shell’s share price resilience as the world continues to shift from fossil fuels to sources of renewable energy in the years ahead.

Objectives of the Powering Progress stategy include protecting the environment, achieving net zero emissions, and cultivating a diverse portfolio that generates value for shareholders. According to Royal Dutch Shell, milestones in this journey have included giving customers a choice when it comes to decarbonising their energy use, divesting in areas that don’t align with this new approach, and improving transparency.

The energy giant has become the first company to link executive pay with carbon emissions. Recently, it also collaborated with a host of renewable energy firms, from NewMotion to Silicon Ranch and First Utility.

Shell share price forecast 2021

While these results and forecasts are certainly promising, Royal Dutch Shell has some way to go before it returns to pre-pandemic levels.

The current price of £16.06 (on 22 November), while a vast improvement on the £8.78 recorded last year, is still low in comparison to the prices of £23 seen at the start of 2020, before the full extent of the threat posed by coronavirus was known. 

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On the face of it, this company is well-positioned to continue benefitting from the economic recovery and enjoy growth as lockdown restrictions continue to ease around the world.

However, given that the pandemic has caused lasting changes in the way we commute, with remote working now set to be a permanent fixture in many of our lives, it’s possible Covid-19 may have had an indelible impact on demand for oil. Always do your own research before buying. 

It may do, it may not. As always, remember to do your own research first and factor in the latest news developments before buying the stock, and never spend more than you can afford to lose.

It’s difficult to know where the Shell share price will be in four years’ time, but there’s little doubt that investors will be measuring the value of this company based on how it progresses towards some of its targets for diversification.

By 2025, Shell wants to have a network of 15,000 convenience stores – driven by an expansion in a number of key markets such as China, India, Indonesia, Mexico and Russia. Another target involves having 55,000 retail-branded service stations that serve 40 million customers on a daily basis.

As vehicles move away from petrol, Shell also wants to build a network of more than 500,000 electric vehicle charging points. 

Further reading

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