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How Will Shell (RDS.A) Stock React To Sale of Nigerian Oilfields for $5 Billion?

Stocks in this article: RDS.A

NEW YORK (TheStreet) -- Shares of Royal Dutch Shell (RDS.A) are slightly lower after a consortium they lead is close to selling several Nigerian oilfields for about $5 billion to domestic buyers, as foreign companies retreat from sub-Saharan Africa's oldest oil industry, the Financial Times reports.

The price tag for the four oilfields and a key pipeline co-owned by Shell, France's Total (TOT)  and Eni (E) of Italy has doubled since initial estimates towards the end of last year, highlighting the financial muscle of a cluster of Nigerian oil companies that have emerged as prominent players in the country's hydrocarbon industry, the Times said.

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TheStreet Ratings team rates ROYAL DUTCH SHELL PLC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate ROYAL DUTCH SHELL PLC (RDS.A) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its solid stock price performance, increase in net income, attractive valuation levels, largely solid financial position with reasonable debt levels by most measures and growth in earnings per share. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The strong earnings growth this company has enjoyed -- up -- has apparently played a role in driving up its share price by a solid 25.37%. In addition, the rise in the general market has likely contributed to this stock's strong performance during this past year.Regarding the stock's future course, although almost any stock can fall in a broad market decline, RDS.A should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income increased by 205.5% when compared to the same quarter one year prior, rising from $1,737.00 million to $5,307.00 million.
  • RDS.A's debt-to-equity ratio is very low at 0.24 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.85 is somewhat weak and could be cause for future problems.
  • ROYAL DUTCH SHELL PLC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, ROYAL DUTCH SHELL PLC reported lower earnings of $5.18 versus $8.52 in the prior year. This year, the market expects an improvement in earnings ($15.35 versus $5.18).
  • You can view the full analysis from the report here: RDS.A Ratings Report
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