OXY vs. FANG: Which Oil and Energy Stock Has More Upside Potential?

Industry Overview - The Zacks Oil-Energy sector presents a strong long-term investment case due to vast shale reserves, advanced extraction methods, and resilient global energy demand [1] - Breakthroughs like hydraulic fracturing and horizontal drilling have established the U.S. as a global leader in oil and natural gas production and exports [1][2] Company Analysis: Occidental Petroleum (OXY) - Occidental Petroleum is supported by a diversified portfolio, solid free cash flow generation, and a strategic focus on low-carbon solutions [4] - The company benefits from its dominant position in the Permian Basin and international assets, delivering consistent production and reliable earnings [4] - OXY's capital management, ongoing debt reduction, and commitments to carbon capture initiatives enhance its long-term growth potential [4] - The current ROE for OXY is 13.78%, outperforming FANG's ROE of 9.48% [14] - OXY plans to invest between $7.1 billion and $7.3 billion in 2025 to strengthen operations [13] - OXY's stock gained 16.4% in the past three months, outperforming FANG's 10.9% and the sector's 8.8% [8][17] Company Analysis: Diamondback Energy (FANG) - Diamondback Energy is positioned as a leading independent producer with a high-quality asset base and efficient operations [5] - The company maintains a disciplined capital strategy that prioritizes shareholder returns through dividends and share repurchases [5] - FANG's debt to capital stands at 26.09%, lower than OXY's 39.22% and better than the S&P 500 level of 38.33% [11] - The dividend yield for Diamondback is currently 2.72%, higher than OXY's 2.05% and the S&P 500's yield of 1.48% [16] Comparative Analysis - Both companies are leveraging technology and operational efficiencies to maximize recovery and reduce emissions [3] - OXY appears to have a marginal edge over FANG due to its wider capital expenditure plan, cheaper valuation (5.56X EV/EBITDA compared to FANG's 6.62X), better ROE, and stronger share price return [15][21] - The Zacks Consensus Estimate indicates a decline in earnings for both companies, with OXY projected to decline by 3.48% for 2025 and 10.32% for 2026, while FANG is expected to decline by 2.14% for 2025 and increase by 0.35% for 2026 [7][9]