OF INTEREST26 Jan 2019 23:13
Shell (Q4 earnings 31 January)
Shell is forecast to report a 27% rise in earnings for the quarter, to 66.5 cents per share, while revenue is expected to rise 8.3% to $92.55 billion. Quarterly results are usually not particularly volatile, with an average move of 1.34% and a current implied move of 1.26%.
Shell will find it tough to match the third quarter's (Q3) storming quarter, which saw its highest adjusted cash flow in over ten years. The Q4 is currently expected to be very strong as well, but given recent volatility and the rout in the oil price, things may not turn out as well as hoped. Still, at 10.4 times forward earnings, the shares are still cheap, compared to the five-year average of 13.1, and with the oil price only down 5% from the beginning of 2018, when the shares traded at 15 times forward earnings, Shell still looks good value.
The shares have broken their post-2016 uptrend, but while the picture seems worrying for bulls, the price remains within a bullish wedge formation. The rate of decline has slowed, and so far the price has held the £22.50 area, holding above the lows of late December. A rebound would target the top end of the wedge around £23.70, and a breakout then opens the way to £24.50.
Shell chart
Diageo (first-half earnings 31 January)
First-half (H1) revenue is forecast to rise 4.1% at Diageo, to £6.8 billion, while earnings per share are expected to rise 4.6% to 70.9p. The average move on results day is 2.4%, compared to a current expectation of 2.3%.
Diageo’s strategy of boosting consumption of premium spirits continues to pay dividends, though it does require a decent performance in China and the US, and it is the former that is probably keeping Diageo executives up at night. However, a solid performance should mean further price rises in order to bolster profitability. At 20.6 times earnings, the shares are a shade above the 19.9 five-year average, but given recent growth this does not seem too demanding a multiple.
Compared to the FTSE 100, which saw remarkable gyrations in 2018, Diageo has been a haven in terms of share price performance. While it sold off in the summer, it created a higher low as it touched the bottom end of the post-2016 rising channel. The rising 200-day simple moving average (SMA) at £27.08 also provides good support, and further gains will target December’s high at £28.70.
Diageo chart
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