Case Study: Occidental Petroleum (OXY) stock according to high performing analysts
Key Points
Performance
Occidental Petroleum shares fell by 3.1% this week, pushing their year-to-date gains down to -4.45%. This compares poorly to the S&P 500 which is up by 7.84% on a year-to-date basis.
Event & Impact
Occidental Petroleum posted its first quarter results this week, missing Wall Street’s expectations on both the top and bottom lines. During Q1, OXY’s revenue totaled $7.26 billion, missing Wall Street’s consensus estimate by $110 million. Occidental’s Q1 non-GAAP earnings-per-share came in at $1.09, which was $0.18/share below consensus.
Noteworthy News:
During Q1, OXY increased its oil production output; however, lower oil prices hurt its margins during the quarter. This caused OXY’s earnings and free cash flows to fall. However, the company continued to reward shareholders during the quarter, buying back more than $750 million worth of shares. Warren Buffett’s Berkshire Hathway continued to build its OXY position during the quarter.
Nobias Insights
59% of recent articles published by credible authors focused on OXY shares offer a “bullish” bias. Three out of six credible Wall Street analysts who cover OXY believe that shares are likely to rise in value. The average price target applied to Occidental by these analysts is $70.33, implying upside potential of approximately 21% relative to the stock’s current share price of $58.09.
Bullish Take Faisal Humayun, a Nobias 4-star rated author, said, “The most important point to note is that Occidental reported free cash flow of $13.6 billion in 2022. In the same year, the company retired $10.6 billion in debt.”
Bearish Take Kit Norton, a Nobias 4-star rated author, stated, “Occidental Petroleum reported revenue slipping 13% to $7.26 billion in Q1. OXY earnings sank 48% to $1.09 per share.”
OXY May 2023
Occidental Petroleum (OXY), a popular stock in the energy sector due to Berkshire Hathaway’s significant investment in the company, reported its first quarter earnings this week. Roughly a month ago, Nobias 5-star rated author, Long Player, published a bullish article on OXY shares at Seeking Alpha which was focused on the fact that Warren Buffett continues to buy shares of Occidental Petroleum.
Due to Buffett’s fame as a successful investor, investors tend to pay close attention to what he’s investing in. On April 11th, Long Player wrote, “Warren Buffett of Berkshire Hathaway Inc. made the news when he again purchased more shares of Occidental Petroleum Corporation.” They noted that investors have questioned this decision from the Oracle of Omaha; however, the author stated that Buffett has to invest in large companies like OXY because they’re the only types of stocks that can truly move the needle for his firm at Berkshire. But, Long Player noted that Buffett’s interest isn’t only about size, but also the growth potential of Occidental moving forward, driven largely by the market’s misunderstanding of its recent M&A activity. Long Player wrote, “Occidental is not only doing well now, but the Anadarko acquisition may uncover additional value in the future that is not obvious to the market currently.”
Regarding the long-term impact of the Anadarko deal, Long Player wrote: “Occidental profitability is likely to improve for years because of the Anadarko acquisition (rather than one large profitability jump). The cyclical nature of the business makes it a bit hard to become apparent to the average shareholder because profitability will likely be greater at different oil prices throughout the industry cycle. This is something that is more likely to be measured by management in detail rather than easily apparent to the market.”
However, since this article was published, OXY shares have fallen by roughly 10%, creating what many credible authors believed to be an attractive entry point coming into earnings season. Shares have trended lower for months now after hitting 52-week highs in the upper $70’s late last year.
After falling another 3.1% this week, OXY shares trade in the $58 area; which is much closer to its $54.30 52-week lows than those prior highs. Occidental’s most recent leg lower was a response to its first quarter earnings results.
Bearish Nobias Credible Analysts’ Opinions:
Kit Norton, a Nobias 4-star rated author, put a spotlight on OXY’s Q1 results in an article that he published this week at Investors.com.
Regarding Wall Street’s expectations for Occidental coming into the quarter, Norton wrote, “Wall Street forecast EPS falling 42% to $1.24 in the first quarter, according to FactSet. Analysts predicted revenue dropping around 11% to $7.46 billion.” “For the year,” he continued, “consensus views call for a 43% earnings decline and a drop of nearly 17% in revenue.”
Looking at the company’s actual results, Norton said, “Occidental Petroleum reported revenue slipping 13% to $7.26 billion in Q1. OXY earnings sank 48% to $1.09 per share.” During the quarter, he also mentioned that, “Cash flow from operations came in at $2.9 billion, falling 10% compared to Q1 2022.”
“Meanwhile,” Norton added, “free cash flow dropped 33% in Q1, totaling $1.69 billion.” He highlighted the impact of lower oil prices on OXY’s top and bottom-line, stating, “Occidental Petroleum produced 1.22 million barrels of oil equivalent per day in the first quarter, up 13% from last year.” “OXY raised its full-year production guidance to average 1.195 million barrels of oil equivalent per day,” he said. So, even though oil is off of its highs, this company has plans to continue with its strong production numbers. Norton noted that the company continues to use its cash flows to return cash to shareholders. “Occidental Petroleum repurchased $752 million worth of stock, on pace for its 2023 $3 billion repurchase program,” he said.
Bullish Nobias Credible Analysts Opinions:
Despite the stock’s slowing fundamental growth, Faisal Humayun, a Nobias 4-star rated author, recently highlighted Occidental as a top pick in the energy sector. In his article titled, “3 Oil and Gas Stocks to Buy on Correction” Humayun expressed bullish sentiment for OXY shares, writing, “The 1.14% dividend yield stock looks attractive at a forward price-earnings ratio of 11.3.” He continued, “The most important point to note is that Occidental reported free cash flow of $13.6 billion in 2022. In the same year, the company retired $10.6 billion in debt.” But, this isn’t only a play on an improving balance sheet and shareholder returns.
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
Humayun believes that Occidental is an attractive growth story, stating, “The company’s Permian asset production has continued to increase on a quarter-on-quarter basis. The outlook remains positive for 2023.” “Overall,” Humayun concluded, “OXY stock looks attractive with value creation through dividends, share repurchases, and potential stock upside.”
Overall bias of Nobias Credible Analysts and Bloggers:
Overall, 59% of recent articles published on OXY by credible authors that the Nobias algorithm follows have expressed a “bullish” bias. The credible Wall Street community that tracks OXY shares is less bullish, however.
Currently, only three out of six credible Wall Street analysts that Nobias tracks who cover OXY shares believe that they’re likely to increase in value. Neal Dingmann, a Nobias 4-star rated analyst from Truist, is one of them. Dingmann recently maintained his “buy” rating on OXY shares after examining the company’s Q1 results.
According to the Fly on the Wall, “Truist analyst Neal Dingmann lowered the firm's price target on Occidental Petroleum to $85 from $86 but keeps a Buy rating on the shares. The stock has underperformed peers and oil prices the past three months due to investor concerns over asset performance despite operations continuing to show improved efficiencies, the analyst tells investors in a research note. The firm adds that not only are key domestic plays such as the Permian and DJ generating results ahead of its estimates, other upstream plays continue to top its forecasts.”
The average price target being applied to OXY shares by the credible analysts community that the Nobias algorithm tracks is $70.33. Currently, OXY shares trade for $58.09. Therefore, that average price target implies upside potential of approximately 21%.
Disclosure: Nicholas Ward has no OXY position. Nicholas Ward wrote this article for Nobias at their request with the intention of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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Disclaimer: The Nobias star rating is based on past performance results and is not an indicator of future results. These past performance returns do not represent returns that any investor actually earned. Assumptions made include the ability to purchase the stocks recommended by the author under liquid markets where the transaction would be at the market price for the day. In reality, loss in liquidity may have a material impact on the returns that actually may have been earned. Further, returns are calculated without any including transaction costs, management fees, performance fees or expenses, or reinvestment of dividends and other income. This information is provided for illustrative purposes only.