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Occidental Stock Dips 15.8% in a Year: How Should You Play?
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Occidental Petroleum’s (OXY - Free Report) share price has dropped 15.8% in the trailing twelve months compared with its industry’s decline of 7.2%. OXY exposure to fluctuating market prices of commodities remains a concern. As of Dec. 31, 2023, there were no active commodity hedges in place, so if the commodity prices drop substantially, it can adversely impact Occidental’s performance.
The company has issued $5 billion of senior unsecured notes to fund the cash consideration of the CrownRock acquisitions. A huge increase in debt was concerning, but Occidental has issued the debts in five tranches, at a weighted average coupon rate of less than 5.5%, creating a manageable debt maturity profile.
Occidental's Price Performance One Year
Image Source: Zacks Investment Research
Factors Acting in Favor of Occidental
Occidental's strong domestic operation and focus on Permian resources have benefited the company. It strengthened its portfolio through the addition of CrownRock's assets in the Midland Basin. Courtesy of the contribution from CrownRock, the midpoint of OXY’s total company production and guidance has increased from 1.25 million barrels of oil equivalents (BOE) to approximately 1.32 million BOE per day.
Occidental was able to maintain its investment-grade credit rating from the premier rating agency and is working relentlessly on its deleveraging strategy. It is on track to return at least $4.5 billion of debt before next August.
Occidental intends to use its free cash flow and proceeds from non-core asset divestiture to redeem its outstanding debts. By the end of the third quarter, utilizing $818 million proceeds from Delaware asset divestiture, the company will be able to achieve a total year-to-date reduction of over $3.8 billion of debt reduction target or 85%. Ongoing debt reduction continues to lower the capital servicing expenses of the company. Interest expenses of Occidental at the end of the second quarter of 2024 were down 11% sequentially.
The company continued with its stable performance in the last four quarters, resulting in an average positive surprise of 20.6%. Occidental's operational excellence, paired with a high-quality asset portfolio, allows it to deliver strong performance.
Occidental’s Average Earnings Surprise
Image Source: Zacks Investment Research
Factors That Can Adversely Impact Occidental
Occidental’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.
Fluctuations in demand and volatile global and local commodity prices affect Occidental’s results of operations. The company 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 impact Occidental’s performance.
Occidental Returns Lower Than the Industry
Occidental’s return on equity (ROE) is lower than the industry average in the trailing 12 months. ROE of OXY was 17.91% compared with the industry average of 19.89%.
Image Source: Zacks Investment Research
Occidental’s EPS Estimates Going Down
The Zacks Consensus Estimate for Occidental’s 2024 and 2025 earnings per share has moved down 2.5% and 11.8%, respectively, in the past 60 days.
Image Source: Zacks Investment Research
Occidental 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 5.38X compared with its industry average of 4.65X.
Image Source: Zacks Investment Research
Summing Up
Occidental stock has lost a portion of its market cap in the last 12 months. 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.
Yet, focus on the Permian region, the acquisition of CrownRock and its ongoing initiatives to lower debts are positives for the company.
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.
Image: Bigstock
Occidental Stock Dips 15.8% in a Year: How Should You Play?
Occidental Petroleum’s (OXY - Free Report) share price has dropped 15.8% in the trailing twelve months compared with its industry’s decline of 7.2%. OXY exposure to fluctuating market prices of commodities remains a concern. As of Dec. 31, 2023, there were no active commodity hedges in place, so if the commodity prices drop substantially, it can adversely impact Occidental’s performance.
The company has issued $5 billion of senior unsecured notes to fund the cash consideration of the CrownRock acquisitions. A huge increase in debt was concerning, but Occidental has issued the debts in five tranches, at a weighted average coupon rate of less than 5.5%, creating a manageable debt maturity profile.
Occidental's Price Performance One Year
Image Source: Zacks Investment Research
Factors Acting in Favor of Occidental
Occidental's strong domestic operation and focus on Permian resources have benefited the company. It strengthened its portfolio through the addition of CrownRock's assets in the Midland Basin. Courtesy of the contribution from CrownRock, the midpoint of OXY’s total company production and guidance has increased from 1.25 million barrels of oil equivalents (BOE) to approximately 1.32 million BOE per day.
Occidental was able to maintain its investment-grade credit rating from the premier rating agency and is working relentlessly on its deleveraging strategy. It is on track to return at least $4.5 billion of debt before next August.
Occidental intends to use its free cash flow and proceeds from non-core asset divestiture to redeem its outstanding debts. By the end of the third quarter, utilizing $818 million proceeds from Delaware asset divestiture, the company will be able to achieve a total year-to-date reduction of over $3.8 billion of debt reduction target or 85%. Ongoing debt reduction continues to lower the capital servicing expenses of the company. Interest expenses of Occidental at the end of the second quarter of 2024 were down 11% sequentially.
The company continued with its stable performance in the last four quarters, resulting in an average positive surprise of 20.6%. Occidental's operational excellence, paired with a high-quality asset portfolio, allows it to deliver strong performance.
Occidental’s Average Earnings Surprise
Image Source: Zacks Investment Research
Factors That Can Adversely Impact Occidental
Occidental’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.
Fluctuations in demand and volatile global and local commodity prices affect Occidental’s results of operations. The company 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 impact Occidental’s performance.
Occidental Returns Lower Than the Industry
Occidental’s return on equity (ROE) is lower than the industry average in the trailing 12 months. ROE of OXY was 17.91% compared with the industry average of 19.89%.
Image Source: Zacks Investment Research
Occidental’s EPS Estimates Going Down
The Zacks Consensus Estimate for Occidental’s 2024 and 2025 earnings per share has moved down 2.5% and 11.8%, respectively, in the past 60 days.
Image Source: Zacks Investment Research
Occidental 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 5.38X compared with its industry average of 4.65X.
Image Source: Zacks Investment Research
Summing Up
Occidental stock has lost a portion of its market cap in the last 12 months. 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.
Yet, focus on the Permian region, the acquisition of CrownRock and its ongoing initiatives to lower debts are positives for the company.
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.