Its been a mixed year for our two top FTSE 100 oil companies. Shares in both are up over 12 months, with Royal Dutch Shell (LSE: RDSB) (NYSE: RDS-B.US) up 15% while BP has only managed a 5% gain.
And since the start of 2014, Shell shares are up 8% to 2,460p against a FTSE that has slipped a percent, while BP is on a loss of almost 5%.
At this rate, Shell looks like a pretty good bet to end the year ahead of the index.
After a couple of years of falling earnings, during which Shell has been divesting some of its lower-margin non-core assets, 2014 is expected to see a return to growth. Analysts are forecasting a rise in EPS this year of more than 40%, and theyve been getting more bullish as the year has progressed six months ago we had a consensus of 209p EPS this year followed by 219p next, but the latest opinion sees those beefed up to 233p and 238p respectively.
And in terms of recommendations, out of 37 brokers forecasting, 17 are putting out a Strong Buy rating with one on a mere Buy, 18 are on the Hold fence, and theres a solitary voice crying out for us to Sell.
Dividends are expected to rise only modestly, but we should still be seeing yields of 4.5% and 4.7% over the next two years if forecasts are accurate, and they should be twice covered by earnings.
At first half time reported in July, chief executive Ben van Beurden told us that the companys focus on better financial performance, enhanced capital efficiency, and continued strong project delivery was paying off, and said Our financial performance for the second quarter of 2014 was more robust than year-ago levels but I want to see stronger, more competitive results right across the company.
In addition, Shell has been on a heavy share-repurchase binge in recent months, and expects to buy up shares worth a total of $7-8bn for 2014 and 2015. That should also add impetus to the share price, as it will boost earnings and dividends per share for those remaining in circulation.
In fact, over this year and next, Shell expects to hand back more than $30bn in cash in the form of dividends and buybacks, and thats a pretty confident move.
Where does all this leave the shares right now?
Were looking at forward P/E ratios of 10.6 and 10.3 for the next two years, and with dividends of more than 4% that simply looks too cheap.
I reckon theres more upside to come, and the chances that Shell shares will finish the year even further ahead of the FTSE are high.
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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.