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Rotten Growth Prospect: Royal Dutch Shell Plc

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3 Stocks With Rotten Growth Prospects: Royal Dutch Shell Plc, Tesco PLC And Centrica PLC

By Royston Wild – Tuesday, 19 May, 2015

Today I am looking at three stock market terrors poised to endure extended earnings woe.

Screen Shot 2015-05-19 at 18.39.24Royal Dutch Shell

Fossil fuel colossus Shell (LSE: RDSB) (NYSE: RDS-B.US) has grabbed the headlines again over the past week after the US government gave the green light for drilling work off the coast of Alaska to begin during the summer. Although the region has long been considered the oil sector’s holy grail due to the billions of untapped barrels of oil sitting under the surface, Shell has already experienced production troubles in the Arctic and was forced to pack up work in 2012 following huge safety failures.

The business is already facing a challenging backcloth as a worsening supply/demand balance across the crude market threatens to send prices plummeting again. Accordingly Shell has divested heavily to build a capital buffer — just today it sold its Butagaz LPG division to DCC for $529m — and has also taken the hatchet to its capex budgets in recent years. But of course such drastic action raises questions over how exactly Shell will generate earnings expansion in the years ahead.

Although Shell’s’ planned purchase of BG Group gives it access to the latter’s blue-ribbon assets in Brazil and Australia, in the current climate I reckon that earnings growth could still prove elusive. Indeed, these troubles are expected to push earnings 32% lower in 2015, according to City analysts, creating an unreasonably-high P/E multiple of 15.4 times. And although the bottom line is anticipated to swell 29% the following year, I do not foresee such explosive growth given the number of hurdles the oil producer has to jump.

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