Occidental Petroleum: Low-Priced Opportunity


I am bullish on Occidental Petroleum (OXY), as Wall Street analysts are generally bullish on it and the average price target indicates strong upside potential over the next year. Additionally, the business should benefit from macro trends and the valuation multiples look very cheap relative to historical averages.

Occidental Petroleum is a company that was founded in 1920 and is headquartered in Texas, United States. In the U.S., Chile, and Canada, the company operates as a petrochemical manufacturing country, and in Colombia, the Middle East, and the US, it also focuses on hydrocarbon exploration. The company’s primary focus, however, remains the exploration and production of natural gas and oil.

Additionally, Occidental Petroleum also operates under the midstream and marketing segment. The energy company is popularly considered a leader in the carbon management field. One of the company’s significant operations is held in northern Oman, where the company’s Muradi Huraymah gas plant is being operated.

Strengths

Occidental Petroleum operates in the energy and power sector and has created an unrivaled profile in the oil and gas category. The company utilizes of cutting-edge technology to reach hard-to-recover reserves and boost its production. These factors have provided the company a superior market position, both locally and internationally.

In addition to technology, the company has shifted its focus toward cost-cutting tactics and a more reliable operational efficiency, backed by its strong infrastructure. Its subsidiaries, such as Oxychem, have also helped Occidental Petroleum grow in the petrochemicals industry with a robust line of products and offerings. In 2020, the company was able to produce 1,037 thousand barrels of oil equivalent in the United States alone, which represented 77% of its global production.

Recent Results

According to the company’s annual report from 2020, Occidental Petroleum made net sales of $17,809 million and was able to reduce its debt by $2.4 billion. The revenues and other income totaled $16,261 million. However, this was a decrease from the previous two year’s annual results, representing a total of $21,750 million and $18,934 million in 2019 and 2018, respectively.

The net loss attributable to common stockholders for 2020 reached $17.06 for both basic and diluted shares. This was a staggering increase from 2019’s results, which showed a loss of $1.22 for the same. The total liabilities for the company were $292 million.

Valuation Metrics

OXY stock looks inexpensive here, as it trades well below its historical averages on an enterprise value to EBITDA ratio and price to normalized earnings per share basis.

Its enterprise value to EBITDA ratio is 5.51 times compared to its historical average of 7.95 times and its price to normalized earnings per share ratio is 10.22 times compared to its historical average of 18.50 times.

Meanwhile, analysts expect revenue to increase by 5.2% in 2022 and normalized earnings-per-share to increase by 36.6% in 2022.

Wall Street’s Take

According to Wall Street analysts, OXY earns a Moderate Buy analyst consensus based on eight Buy ratings, three Hold ratings, and two Sell rating in the past 3 months. Additionally, the average OXY price target of $43.08 puts the upside potential at 14.7%.

Summary and Conclusions

OXY stock is backed by a substantial energy business that should be bolstered by inflationary trends and a reopening global economy. Indeed, the worst impacts of the COVID-19 pandemic are expected to finally begin subsiding in the coming months.

On top of that, Wall Street analysts are generally bullish on the stock here and the average price target implies substantial upside potential over the next year. Last but not least, the stock looks very cheap when compared to average historic valuation multiples

As a result, it might be a good time for investors to consider adding shares of the stock.

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