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Occidental (OXY) Gains 5.4% in 15 Days: Should You Hold or Fold?
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Occidental Petroleum (OXY - Free Report) shares have gained 5.4% in the last fortnight compared with the industry’s rise of 3%. The company operates in a highly competitive industry, which might create challenges in adding new oil and gas reserves and replenishing production volumes.
Occidental shares have returned 4.7% in the past six months. While it outperformed its oil and gas peer BP Plc. (BP - Free Report) , it lagged TotalEnergies SE (TTE - Free Report) . BP gained 1.1%, whereas TTE gained 5% in the said timeframe.
Price Performance (Six Months)
Image Source: Zacks Investment Research
Factors in Favor of Occidental
Occidental Petroleum's strong domestic operation and focus on Permian resources have been beneficial for the company. The company’s core development area in the Permian region has been recording solid results. Production from this region is expected to improve further from the current levels, courtesy of the new wells added in this region. OXY's decision to acquire CrownRock L.P. will further expand its operation in the Permian Basin.
The company expects total production in the band of 1,220-1,280 Mboe/d in 2024. Permian assets remain a consistent contributor to the firm’s overall production. Production from the Permian region is expected in the range of 569-599 thousand barrels of oil equivalent per day (Mboe/d) for 2024. Occidental Petroleum is set to bring online 380-420 company-operated wells in the Permian region in 2024, which will further boost production volumes.
Occidental Petroleum recently completed its large-scale asset divestiture program and utilized the net proceeds from asset sales and free cash flow to repay near and medium-term debt maturities. The company retired more than $10.5 billion in long-term debt, which lowered its interest and financial expenses annually by $400 million. Occidental Petroleum continues to implement its debt-reduction initiatives and plans to reduce the existing debt of $3.7 billion having maturities in 2024-2026. This will further strengthen its balance sheet and reduce interest payments, thus boosting margins.
Headwinds
Occidental Petroleum’s businesses operate in a highly competitive environment, which could affect its profitability and growth. The company faces competition from peers to procure new reserves and replenish production volumes.
Occidental remains exposed to fluctuating market prices of commodities, and as of Dec 31, 2023, there were no active commodity hedges in place. If the commodity prices drop substantially from their current level, it will definitely impact Occidental Petroleum’s performance.
Returns Lower Than the Industry
Occidental’s return on invested capital (ROIC) has underperformed the industry average in the trailing 12 months. ROIC of OXY was 7.74% compared with the industry average of 10.85%.
Image Source: Zacks Investment Research
Estimates Going Down
The Zacks Consensus Estimate for Occidental Petroleum’s 2024 and 2025 earnings per share has moved down 0.8% and 2.8%, respectively, in the past 90 days. The downward revision in earnings estimates indicates analysts’ decreasing confidence in the stock.
Image Source: Zacks Investment Research
Trading at a Premium
Occidental’s shares are somewhat expensive on a relative basis, with its current trailing 12-month Enterprise Value/Earnings before Interest Tax Depreciation and Amortization (EV/EBITDA TTM) being 6.11X compared with its industry average of 5.28X.
Image Source: Zacks Investment Research
Summing Up
Occidental’s focus on the Permian region, its ongoing initiatives to lower debts, strength in global operations and benefits from acquisition will boost performance.
However, exposure to commodity price fluctuation and a very competitive oil and gas industry pose challenges for the company. Occidental’s premium valuation and lower return compared with the industry also do not make a strong case for the company.
Image: Bigstock
Occidental (OXY) Gains 5.4% in 15 Days: Should You Hold or Fold?
Occidental Petroleum (OXY - Free Report) shares have gained 5.4% in the last fortnight compared with the industry’s rise of 3%. The company operates in a highly competitive industry, which might create challenges in adding new oil and gas reserves and replenishing production volumes.
Occidental shares have returned 4.7% in the past six months. While it outperformed its oil and gas peer BP Plc. (BP - Free Report) , it lagged TotalEnergies SE (TTE - Free Report) . BP gained 1.1%, whereas TTE gained 5% in the said timeframe.
Price Performance (Six Months)
Image Source: Zacks Investment Research
Factors in Favor of Occidental
Occidental Petroleum's strong domestic operation and focus on Permian resources have been beneficial for the company. The company’s core development area in the Permian region has been recording solid results. Production from this region is expected to improve further from the current levels, courtesy of the new wells added in this region. OXY's decision to acquire CrownRock L.P. will further expand its operation in the Permian Basin.
The company expects total production in the band of 1,220-1,280 Mboe/d in 2024. Permian assets remain a consistent contributor to the firm’s overall production. Production from the Permian region is expected in the range of 569-599 thousand barrels of oil equivalent per day (Mboe/d) for 2024. Occidental Petroleum is set to bring online 380-420 company-operated wells in the Permian region in 2024, which will further boost production volumes.
Occidental Petroleum recently completed its large-scale asset divestiture program and utilized the net proceeds from asset sales and free cash flow to repay near and medium-term debt maturities. The company retired more than $10.5 billion in long-term debt, which lowered its interest and financial expenses annually by $400 million. Occidental Petroleum continues to implement its debt-reduction initiatives and plans to reduce the existing debt of $3.7 billion having maturities in 2024-2026. This will further strengthen its balance sheet and reduce interest payments, thus boosting margins.
Headwinds
Occidental Petroleum’s businesses operate in a highly competitive environment, which could affect its profitability and growth. The company faces competition from peers to procure new reserves and replenish production volumes.
Occidental remains exposed to fluctuating market prices of commodities, and as of Dec 31, 2023, there were no active commodity hedges in place. If the commodity prices drop substantially from their current level, it will definitely impact Occidental Petroleum’s performance.
Returns Lower Than the Industry
Occidental’s return on invested capital (ROIC) has underperformed the industry average in the trailing 12 months. ROIC of OXY was 7.74% compared with the industry average of 10.85%.
Image Source: Zacks Investment Research
Estimates Going Down
The Zacks Consensus Estimate for Occidental Petroleum’s 2024 and 2025 earnings per share has moved down 0.8% and 2.8%, respectively, in the past 90 days. The downward revision in earnings estimates indicates analysts’ decreasing confidence in the stock.
Image Source: Zacks Investment Research
Trading at a Premium
Occidental’s shares are somewhat expensive on a relative basis, with its current trailing 12-month Enterprise Value/Earnings before Interest Tax Depreciation and Amortization (EV/EBITDA TTM) being 6.11X compared with its industry average of 5.28X.
Image Source: Zacks Investment Research
Summing Up
Occidental’s focus on the Permian region, its ongoing initiatives to lower debts, strength in global operations and benefits from acquisition will boost performance.
However, exposure to commodity price fluctuation and a very competitive oil and gas industry pose challenges for the company. Occidental’s premium valuation and lower return compared with the industry also do not make a strong case for the company.
Despite the headwinds, it is advisable to keep this Zacks Rank #3 (Hold) stock in your portfolio, given its strong domestic operations and exposure to the prolific Perman Basin. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.