Occidental Petroleum: Shares Beaten Down, Offer A Compelling Value

Oil Market Overview - WTI crude oil prices hit year-to-date lows due to supply/demand concerns, with China's economic weakness and near-record domestic production contributing to the bearish trend [1] - The Energy sector is the worst-performing area of the US stock market in 2024 [1] Occidental Petroleum (OXY) Performance - OXY shares have suffered, with a market cap of $47 billion and a low-teens P/E ratio, despite high cash flow per share and expected earnings improvements [1] - Q2 2024 non-GAAP EPS of$1.03 beat consensus by $0.26, and revenue of$6.88 billion exceeded expectations by $232 million, leading to a 4.3$12 billion acquisition of CrownRock, which expanded its Midland Basin footprint [3] Valuation and Financial Metrics - OXY's forward P/E is 13.25, 21.17% higher than the sector median, but its forward PEG ratio of 0.76 is 46.11% below the sector median, indicating modest growth expectations [5] - The stock trades at a significant discount to its long-term average on a price-to-sales basis [4] - OXY's free cash flow yield is 9%, and its dividend yield is above the S&P 500 average, though lower than peers [3] Earnings and Growth Outlook - Analysts expect OXY's operating EPS to rise 3% in 2024, accelerating to $4.79 in 2025, with profit growth potentially slowing to just under$5 by 2026 [3] - Revenue growth is expected to be less optimistic in the near term [3] Technical Analysis - OXY shares are close to 20% undervalued, with a bearish technical situation and key support broken at $55, now acting as resistance [9] - A bearish measured move downside price target near$42 is possible, with potential support in the $36-$37 range [9] - The RSI momentum gauge indicates poor momentum, and the 200-day moving average suggests a bearish primary trend [9] Corporate Events - OXY's unconfirmed Q3 2024 earnings date is November 11 AMC, with a $0.22 quarterly dividend payable on October 15 [8] Competitive Position - OXY has a prominent position in the Permian Basin and is advancing carbon capture projects, setting it apart from competitors [3] - The company plans to pay down debt from the CrownRock acquisition within a year, despite a modest increase in debt burden [3] Conclusion - Despite bearish technicals, OXY is viewed as a fundamental value case with potential EPS upside, making it a buy-rated stock [10]