With a $55.18 billion market cap., Occidental Petroleum Corporation (OXY) engages in the acquisition, exploration, and development of oil and gas properties in the United States, the Middle East, Africa, and Latin America. The company operates through three segments: Oil and Gas; Chemical; and Midstream and Marketing.
On Monday, Warren Buffett’s Berkshire Hathaway Inc. (BRK.A) announced that it had purchased another 797,389 shares of OXY, raising its stake to about 16.4% in the company. Berkshire is also the largest individual shareholder in OXY.
OXY shares have gained 103.1% year-to-date and 88.3% over the past year to close the last trading session at $58.88. The surging oil and gas prices have contributed to the stock’s rally. The stock hit its 52-week high of $74.04 on May 31, 2022.
On the other hand, on March 22, OXY entered an agreement with an affiliate of SK Trading International, a subsidiary of SK Innovation Co. Ltd., for net-zero oil created by using environmental attributes generated from carbon dioxide (CO2) removed from the atmosphere by 1PointFive’s planned Direct Air Capture (DAC) facility and sequestered in OXY’s enhanced oil recovery (EOR) reservoirs in the U.S. Permian Basin.
Under the agreement, OXY’s marketing affiliate may provide SK Trading International’s affiliate with an opportunity to purchase up to 200,000 barrels of net-zero oil per year for five years to develop net-zero products. This agreement is expected to promote the company’s sustainability goals and boost its revenue streams.
Here is what could influence OXY’s performance in the upcoming months:
Robust Financials
OXY's net sales increased 57.7% year-over-year to $8.35 billion in the fiscal 2022 first quarter, ended March 31, 2022. The company’s income from continuing operations amounted to $4.88 billion, up 1,530.8% year-over-year. In addition, its operating cash flow from continuing operations grew 311% year-over-year to $3.24 billion.
Furthermore, the company’s adjusted income attributable to common stockholders and adjusted earnings per share came in at $2.13 billion and $2.12, registering increases of 1,664% and 1,513.3%, respectively, from the prior-year period.
Favorable Analyst Estimates
Analysts expect OXY's revenue for the fiscal 2022 second quarter (ending June 2022) to come in at $9.94 billion, representing a rise of 65.4% from the same period in 2021. The $2.93 consensus EPS estimate for the current quarter indicates an 815.6% year-over-year increase.
Also, Street expects the company's EPS to grow 23.5% per annum over the next five years. The company has an impressive earnings history as it has surpassed the consensus EPS estimates in each of the trailing four quarters.
High Profitability
OXY’s trailing-12-month gross profit margin of 64.70% is 61.2% higher than the 40.13% industry average. Its trailing-12-month EBITDA margin of 53.05% is 140.8% higher than the 22.03% industry average. Likewise, the company’s trailing-12-month net income of 25.31% is 420.8% higher than the industry average of 4.86%.
Furthermore, OXY’s trailing-12-month ROCE and ROTA of 55.09% and 9.89% are higher than the industry averages of 10.62% and 3.54%, respectively.
Discounted Valuation
In terms of forward non-GAAP P/E, OXY’s 5.53x is 21.4% lower than the 7.03x industry average. Its 3.93x forward EV/EBITDA is 31.3% lower than the 5.77x industry average. Also, the stock’s 2.98x forward Price/ Cash Flow is 25.3% lower than the 3.98x industry average.
POWR Ratings Show Promise
OXY has an overall B rating, equating to a Buy in our POWR Ratings system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.
OXY has a grade of A for Momentum. This is justified, as the stock is currently trading above its 50-day and 200-day moving averages of $62.07 and $44.47, respectively. In addition, it has a B grade for Quality, which is in sync with its higher-than-industry profitability ratios.
OXY is ranked #31 out of 99 stocks in the B-rated Energy - Oil & Gas industry.
Beyond what I have stated above, we have also given OXY grades for Sentiment, Growth, Value, and Stability. Get access to all the OXY ratings here.
Bottom Line
OXY’s impressive financials and industry tailwinds are expected to drive its performance in the upcoming quarters. Moreover, favorable analyst sentiment and Buffett’s faith in the company’s prospects make it an ideal candidate to invest in now.
How Does Occidental Petroleum Corporation (OXY) Stack Up Against its Peers?
OXY has an overall POWR Rating of B. One could also check out these other stocks within the Energy - Oil & Gas industry with an A (Strong Buy) rating: Adams Resources & Energy, Inc. (AE), PrimeEnergy Resources Corporation (PNRG), and Whitecap Resources, Inc. (SPGYF).
OXY shares were trading at $58.89 per share on Friday afternoon, up $0.01 (+0.02%). Year-to-date, OXY has gained 104.01%, versus a -20.12% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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