Over the past 12 months, the Shell (LSE:SHEL) share price has fallen round 7%. And the corporate is about to report its earnings for the third quarter of 2024. 

It appears to be like possible that earnings are going to come back in decrease than they did a 12 months in the past. However with the inventory already down, is the unhealthy information priced in?

A tough setup

There are two causes Shell’s earnings are anticipated to be weaker than they have been in 2023. One is that issues have been exceptionally sturdy then and the opposite is that they’re tougher now. 

Earlier this week, BP reported its lowest quarterly revenue since 2020. And the corporate recognized weaker refining margins as a key cause for this. 

Gasoline & diesel refining margins Q3 2023-present

It’s completely true that diesel and gasoline margins are decrease than they have been a 12 months in the past – and this is identical for Shell as it’s for BP. However decrease refining differentials aren’t the one challenge.

BP additionally said its buying and selling revenues had normalised after an unusually sturdy Q3 2023. Shell additionally reported a powerful efficiency in its buying and selling a 12 months in the past, in order that’s additionally more likely to be decrease.

Outlook 

These elements imply I’m not anticipating a lot in the best way of optimistic surprises from Shell when it stories earnings on Thursday (31 October). However the larger challenge for the buyers is the long run.

By way of refining margins, the outlook is considerably combined. Whereas the gasoline differential is roughly the place it was a 12 months in the past, the unfold on diesel remains to be a lot decrease. 

In consequence, I’m anticipating weak spot in refining margins to proceed into This fall of this 12 months. And the outlook for oil costs extra broadly can also be difficult within the close to time period. 

The provision aspect of the equation appears to be like sturdy, whereas the demand aspect appears to be like weak. Finally, meaning costs are unlikely to rise till one thing modifications. 

A shopping for alternative?

All of this implies there’s not lots of trigger for optimism round Shell – and oil corporations usually. However typically, the very best time to purchase may be when everybody else is wanting elsewhere. 

With Shell particularly, I’m not fairly positive that is the second, although. A take a look at the place the inventory has been buying and selling by way of its price-to-book (P/B) ratio over the past 10 years is fascinating.

Shell P/B ratio 2015-24

Created at TradingView

The present share price implies a P/B a number of of 1.15, which is roughly in the midst of the historic vary. To me, that doesn’t say buyers are notably fearful proper now.

Given this, I’m inclined to assume the market may be wanting previous the corporate’s short-term points. And whereas that’s commendable, it doesn’t actually make for a shopping for alternative.

Hold watching

I don’t have enormous expectations for Shell forward of the corporate’s Q3 earnings. The enterprise is going through a way more tough set of buying and selling circumstances than it was final 12 months. 

I really assume that is more likely to proceed, however I’m not satisfied the present share price displays this. So I’m going to maintain this one on the watchlist and look elsewhere for alternatives.