Time To Buy Occidental Petroleum Stock?

Core Insights - Occidental Petroleum stock (NYSE: OXY) has decreased approximately 20% over the last year, contrasting with an 18% rise in the S&P 500, primarily due to declining oil prices and a substantial debt burden [2] - The company is divesting its OxyChem unit to Berkshire Hathaway for $9.7 billion, which will provide $6.5 billion for debt reduction, and is also selling off smaller, non-core assets to decrease leverage and focus on core energy and carbon capture initiatives [2][4] Financial Performance - Occidental has experienced a revenue decline at an annual rate of -6.8% over the last three years, with the most recent quarterly revenue dropping 6% to $6.4 billion [8] - The company generated $5.5 billion in operating income over the past 12 months, with a 20% margin, and a cash flow margin of 44.7%, alongside $2.4 billion in net income (8.8% margin) [8] - Occidental carries $24 billion in debt against a $44 billion market capitalization, resulting in a debt-to-equity ratio of 53%, with $2.3 billion in cash compared to $84 billion in total assets [8] Valuation Metrics - Occidental's P/E ratio stands at 26x, slightly above the S&P 500 average of 24x, indicating it may be somewhat pricey in terms of earnings [9] - The company is cheaper in terms of cash flow and sales, with a P/FCF of 9.3 compared to 21.1 for the S&P 500, suggesting it is undervalued based on cash flow and sales metrics [9] Market Context - The overall macroeconomic situation is unfavorable, with Brent crude prices recently dropping below $65 per barrel, indicating expectations of a supply surplus due to declining global demand and rising U.S. production [5] - OPEC+ has increased output targets by more than 2.7 million barrels per day this year, reclaiming market share from U.S. shale after years of restraint [6] Historical Resilience - Historically, Occidental has shown resilience in recovering from market disruptions, although the recovery can be volatile, with significant drops during past crises [10] - The stock fell 33% during the inflation surge in 2022 but rebounded in two months, and it plummeted 81% during the 2020 COVID-induced crash before recovering by March 2022 [10] Strategic Initiatives - The divestment of OxyChem has brought Occidental back into focus, as the company is also advancing its 1PointFive direct air capture initiatives and expanding drilling in the Permian Basin through a partnership with Ecopetrol [4] - Occidental is targeting over $1 billion in extra free cash flow by 2026, indicating a proactive approach to enhance its financial position [4]