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Royal Dutch Shell (NYSE:RDS.A) has shown impressive revenue growth of 40% and 23% in its upstream and downstream business segments, over the course of the last one quarter. Also, the stock is attractive for investors given its low valuations. It is trading at a P/S of 0.4x, as compared to the industry average of 0.8x. Its comparatively higher dividend yield of 4.9%, as compared to the industry average of 2.3%, makes it a great dividend stock. Shell is looking at a lucrative opportunity and bright prospects in the Turkish market - a single successful exploration in the country will improve the company's standing, both economically and competitively.

Moreover, the timely restart of its operative equipment in the U.S., after Hurricane Isaac, bodes well for the company. Shell has also invested heavily in limiting its greenhouse gas emissions to revamp its image to an environment-friendly company. Therefore, we reiterate our bullish stance on the stock.

Company Overview:

Royal Dutch Shell, formed in 2002, is an oil and gas exploration, production, development and marketing company. Its business is segregated into three different segments; upstream, downstream and corporate. In the upstream business segment, the company is engaged in the search and exploration of crude oil, liquefied petroleum gas, and natural gas. The upstream business segment is also managing the company's wind-power generation business in Europe. Moreover, the company's downstream business segment looks after the supply chain network, the marketing, and manufacturing of petrochemicals. Carbon dioxide and alternative energy management are well-known projects in the downstream business. Also, the corporate segment provides support functions, central functions, headquarters and insurance activities.

Revenue by Geographical Segmentation

Q1 2012

Q2 2012

% change

Upstream

$3,772

$5,293

40%

Upstream International

$2,148

$2,187

2%

Upstream Americas

$1,624

$3,106

91%

Downstream

$786

$967

23%

Oil Products

$610

$838

37%

Chemicals

$176

$129

-27%

Corporate

$46

$8

-83%

Source: company website

Environment-Friendly:

The company has decided to introduce the unique phenomena of carbon capture to reduce its carbon emissions. Investors have recognized the importance of investing in going green, since such measures will mean that the company is less exposed to environmental threats. This move will prove to be lucrative in the long term. Therefore, through its Oil Sand Quest Project, Shell will operate, design, and build on storage research, and on carbon capture, for its global operations. Its strong future prospects are depicted through the company spending $1.36 billion on CCS technology to decrease greenhouse gas emissions. The facility will enable the company to capture 1 million tons of carbon dioxide on an annual basis.

Mozambique Prospects:

The company's interest in Mozambique is another strong prospect for its bright future. After Anadarko's (NYSE:APC) and Italian firm ENI's (ENI.MI) recent discoveries of hydrocarbon in the region, it is an attractive area for gas drilling. Empresa Nacional de Hidrocarbonetos ((NYSE:ENH)), a state owned oil company in Mozambique, has welcomed Shell to start its exploration in the region. In our opinion, the expected license for exploration in this area will bring an improvement in Shell's volumes growth.

Turkey a Promising Market:

Shell has recently signed an agreement with TAPO, Turkey's national oil and gas company, to explore oil and gas in the country's southern and eastern regions. Turkey is a very promising market as far as oil and gas are concerned, since it has considerable energy demands. The country itself is producing a very small amount with regards to its requirements. Therefore, most of the demand is met through imports. Recently, the country's trade deficit induced the Turkish government to explore its own shale gas reserves. The fact that Shell has been chosen for this project is a very good omen, given that Exxon (NYSE:XOM), a leading shale gas driller in Europe, was another option that the Turkish government could have opted for. Exxon is still eyeing the prospects of drilling shale gas in Turkey, and has held talks in this regard. This project has already improved Shell's competitive position and will give the company a considerable advantage once a successful discovery is made. The success of the project will also significantly improve the company's profitability and future prospects. In the future, Shell will be an important player, not only in Turkey, but in Europe as a whole, for exploring shale gas, which is an increasingly important source of natural gas, and is acknowledged as the next step in the energy sector's evolution.

Houma-Houston Pipeline:

Having previously shut down a number of its operations in the U.S. due to Hurricane Isaac, Shell has begun to restart its major projects, such as the Houma-Houston pipeline, and a joint venture - the Motiva Enterprises refinery in Convent, Louisiana. Motiva Enterprises is a joint venture between Shell and Saudi Aramco; the 235,000 barrels per day Convent refinery will run at reduced rates after its startup. The restarts are important for Shell, as they will start contributing to the company's revenues. It was also important to restart the facilities on time to keep up with competitors. Shell is also expected to restart its Gulf of Mexico pipeline network, which is waiting for the results of aerial inspections. Shell is eager to return to full operations as soon as possible. Shell's Saraland and Alabama chemical plants have started operations at reduced rates, and the management has said that all of those product terminals that were shut for the storm have been reopened. These efficient and timely measures will improve Shell's profitability and increase its prestige in the eyes of the public, and in the stock exchange.

Price Appreciation:

The stock has shown an upside of 2.6% in the last three months, as we had already predicted an upward trend in our previous report. In our opinion, the stock is still trading at low multiples, and has a significant potential to move upwards. RDS.A's 50-day and 200-day moving averages are $70.9 and $68.4, respectively. We believe that it has bottomed out, and the expected developments in Mozambique and the carbon capture projects have still to be incorporated in the stock price.

Valuation:

Direct Competitor Comparison

Royal Dutch Shell

Exxon Mobil

Chevron (NYSE:CVX)

P/S

0.47x

0.9x

1x

P/B

1.27x

2.5x

1.78x

Dividend Yield %

4.90%

2.50%

3.10%

The stock is currently trading at 0.47x to its sales, at a discount when compared to Exxon Mobil's 0.9x and Chevron's 1x. Its P/B is 1.2x, in contrast to Exxon's 2.5x and Chevron's 1.7x.

Source: 4.9% Dividend Yield, Cheap Valuations - What Else Could You Want From Royal Dutch Shell?