Houston-based 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. It has a market capitalization of $56.86 billion.
Last Thursday, Warren Buffett’s Berkshire Hathaway Inc. (BRK.A) announced that it had purchased another 12 million shares of OXY, raising its stake to 18.7% in the oil and gas company. Berkshire owns a total of 175.4 million shares and thus has become the largest shareholder in the energy company.
OXY has gained 82.7% over the past six months and 109.3% year-to-date to close the last trading session at $60.67. Also, it has gained 104.6% over the past year. The soaring oil and gas prices have contributed to the stock’s surge.
On the other hand, in March, OXY entered into an agreement with an affiliate of SK Trading International, a subsidiary of SK Innovation Co. Ltd., for net-zero oil.
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:
Solid 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 (ended 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 ongoing quarter indicates an 815.6% year-over-year increase. The company’s revenue and EPS for the current year (ending December 2022) are expected to grow 39.8% and 316.5%, respectively, year-over-year.
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-months gross profit margin of 64.70% is 64.9% higher than the 39.24% industry average. Its trailing-12-months EBITDA margin of 53.05% is 140.8% higher than the 22.03% industry average. Likewise, the company’s trailing-12-months net income of 25.31% is 420.8% higher than the industry average of 4.86%.
Furthermore, OXY’s trailing-12-months ROCE and ROTA of 55.09% and 9.89% are higher than the industry averages of 10.61% and 3.54%, respectively.
Discounted Valuation
In terms of forward non-GAAP P/E, OXY’s 5.74x is 18% lower than the 7.00x industry average. Its 4.02x forward EV/EBITDA is 29.5% lower than the 5.71x industry average. Its forward EV/EBIT of 5.62 compared with the industry average of 8.85.
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. It is justified, as the stock is currently trading above its 50-day and 200-day moving averages of $62.34 and $45.31, respectively. In addition, it has a B grade for Quality, which is consistent with its higher-than-industry profitability ratios.
OXY is ranked #32 out of 97 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 reported impressive fiscal 2022 first-quarter results. And the company is well-positioned to benefit from the rising oil and gas prices. Also, recently, Warren Buffett bulked up his stake in the company. So, considering bullish sentiments around the stock, it could be wise to invest in it 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), TotalEnergies SE ADR (TTE), and Whitecap Resources, Inc. (SPGYF).
OXY shares were trading at $59.21 per share on Monday morning, down $1.46 (-2.41%). Year-to-date, OXY has gained 105.12%, versus a -18.52% 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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