Earnings growth at BP (LSE: BP) (NYSE: BP.US) was set to get back on track in 2015, but with the price of oil in a bit of a slump and the “gross negligence” judgement over the Gulf of Mexico disaster both hitting hard, analysts have reined in their expectations.
There was always going to be a fall in earnings per share (EPS) this year, although prospects were looking a little cheerier a few months ago. Today, however, we’re looking at a consensus for a 46% EPS fall for the year to December 2014 with only a very modest 3% pencilled in for 2015.
Third-quarter results released on 28 October showed a headline 59% fall in replacement cost profit to $9,402m, although the company reckoned its underlying figure dropped by only 6.8% to $9,897m. The range of possible year-end EPS figures must be wide, but its going to be weak.
Shell going well
At Royal Dutch Shell (LSE: RDSB), meanwhile, there’s a forecast of 33% growth in EPS for the year ending December, although the City sees that falling back by 4% in 2015.
At Q3 time reported last month, Shell post a 16% rise in nine-month current cost of supplies earnings to $19,300m, although things seem to be getting better as the year progresses — the third quarter itself brought in a 31% rise to $5,847m.
Shell’s strategy of divesting lower-margin assets and concentrating on its highest-quality operations is paying off — as it its investment in new deep-water fields upstream.
Both companies have been hit by the falling price of oil, of course. From a high of nearly $115 per barrel in the summer, the price of crude scraped $78 just over a week ago. But there’s an OPEC meeting coming up this week, which many think will set lower production volumes, and that seems to settled the jitters a little — crude has recovered a couple of dollars and is hovering around $80 today.
Share prices
On current valuations there’s not a lot to choose between the two. BP shares are trading at 443p, putting them on a forward P/E of 10.4 this year and dropping to 10.1 next. And very similarly, at a price of 2,364p Shell shares are on P/E ratios for the two years of 10.5 and 11.
Expected dividend yields at BP are a little stronger with 5.5% and 5.7% penciled in for the two years, compared to 4.9% and 5.1% for Shell, so BP shares are a little more bargain-priced at the moment on fundamentals alone.
But I don’t think the BP discount is sufficient to compensate for the higher risk — and it hasn’t been for some time now.
So for me, growth prospects at Shell are definitely superior.