Your trusted source for the latest news and insights on Markets, Economy, Companies, Money, and Personal Finance.
Popular

Occidental Petroleum: A Potential Buy Opportunity



Key Points
Occidental Petroleum has shown impressive performance in terms of free cash flow, debt reduction, and share repurchases.
Berkshire Hathaway has been increasing its stake in the company.
Dividend payments, share repurchases, and potential dividend growth are expected to drive the stock’s performance in 2024.
5 stocks are recommended over Occidental Petroleum
It remains to be seen whether Warren Buffett and Berkshire Hathaway NYSE: BRK.A are involved in the recent increase in Occidental Petroleum NYSE: OXY shares, but the company’s Q3 results are in line with the strong cash flow that allows for share repurchases, dividend growth, and debt reduction, which has likely contributed to Mr. Buffett’s interest. The takeaway is that Occidental Petroleum continues to improve its operational conditions, capital structure, and production, positioning it for potential future growth. 
Additionally, Mr. Buffett continues to acquire shares, with the latest transactions occurring in late October, adding about 1.7 million shares to the position. Berkshire now holds 228.05 million shares, which equates to about 26% of the 50% they are authorized to buy. Notably, the average prices for the 2 transactions were $62.80 and $63.05, marking the highest price Berkshire has paid for OXY. At this price point, Mr. Buffett’s actions are seen as setting a higher floor for the market and potentially leading to a rally. 
Deleveraging and robust cash flow
Occidental Petroleum’s Q3 release reflects the broader trend in the oil industry, with a revenue decline of over 20% due to the decrease in oil prices. Despite this, the revenue of $7.4 billion exceeded the Marketbeat.com consensus estimate by $0.44 billion, primarily driven by above-guidance production and strength in the OxyChem segment. 
Of significance in the report is the sequential improvement in operating results. The company achieved its strongest results of the year, with a cash flow of $3.3 billion, operating cash flow of $3.1 billion, and free cash flow of $1.7 billion. The free cash flow supported dividend payments, share repurchases totaling $600 million, and the redemption of $342 million in preferred shares. 
Berkshire Hathaway holds the preferred shares, which are integral to the OXY-Buffett Thesis. Berkshire initiated the purchase of OXY common stock early in 2022 when it became evident that cash flow was improving. OXY began redeeming its preferred shares earlier this year, shortly after an increase in stock purchases by Berkshire, and both activities continue to the present. Assuming this trend persists, it is expected that OXY will continue redeeming debt while Berkshire utilizes the capital to acquire common stock. 
Potential catalyst in Occidental’s dividend outlook 
Occidental’s improved cash flow and capital structure, along with the dividend, present an additional potential catalyst for share prices. The company reduced its distribution during the pandemic to conserve capital and has yet to restore it to the previous level, although there is potential for this to happen. The current payout ratio is a low 10% of the earnings consensus, providing ample room for an increase once preferred shares are fully redeemed. 
Notably, the company has already increased the payment once since the reduction by nearly 40%, and another hike is expected in the near future. The Q4 distribution has been declared in line with the annualized outlook, indicating the potential for an increase in the next distribution. Regardless, investors should anticipate additional share repurchases and preferred stock redemption in the Q4 report. 
Analysts HOLD Occidental Petroleum
Analyst sentiment towards Occidental is relatively neutral, with the stock rated as a Hold with a target of $70. The consensus target is approximately 15% above the current price, and it has been gradually increasing following a low point earlier in the year. The low target is remarkably close to the current price at $70, reinforcing the notion that there is support for the market and a potential bottom is in place. Assuming institutional (Berkshire) activity, debt reduction, and share repurchases persist, the consensus target is likely to continue rising in 2024. 
The price action in OXY is also neutral to slightly positive. The market has been trading within a range and may continue to do so, despite the bullish outlook for shareholders. Key support is around $59 and may prompt a buying opportunity if reached. Notably, critical resistance is near $66 and has limited gains for about a year.
usafinancetrends tracks Wall Street’s top-rated and best-performing research analysts and the stocks they recommend to their clients regularly. usafinancetrends has identified five stocks that top analysts believe are better buys than Occidental Petroleum. View The Five Stocks Here Click the link below and we’ll send you usafinancetrends’s guide to investing in 5G and which 5G stocks show the most promise. Get This Free Report

Share this article
Shareable URL
Prev Post

What You Need to Know About Investing in I-Bonds Now

Next Post

Why Investing in Vertex Pharmaceuticals on a Pullback Could Be a Smart Move

Leave a Reply

Your email address will not be published. Required fields are marked *

Read next
Late 2020 marked the onset of a extreme international chip scarcity, which had far-reaching repercussions all…
Key Factors Albertsons reported combined outcomes with better-than-expected earnings, highlighting its worth. …