Occidental Petroleum’s OXY share price has dropped 15.5% in the last six months against the Zacks Oil and Gas Integrated – United States growth of 3.7%. The broader Zacks Oil and Energy sector dropped 4.1% in the same time frame.

In the same time period, its peer ConocoPhillips COP has lost 3.1%, while Cactus Inc. WHD has gained 36.2%, both outperforming Occidental’s share price performance.

OXY exposure to fluctuating market prices of commodities remains a concern. As of Dec. 31, 2023, there were no active commodity hedges in place, so if commodity prices drop substantially, it can adversely impact Occidental’s performance.

Occidental's Price Performance (Six Months)

Image Source: Zacks Investment Research

Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.

Factors Acting as Tailwind for Occidental

Occidental's strong domestic operation and focus on Permian resources have benefited the company. It strengthened its portfolio by adding CrownRock's assets in the Midland Basin. Courtesy of the contribution from CrownRock, the company has revised its production volume upward. Occidental has raised its fourth-quarter production Permian volume by 12,000 barrels per day, 9,000 of which are coming from its CrownRock assets. OXY’s international assets are also coming out with stable production and boosting overall volumes.

Occidental expects total production in the band of 1,430-1,470 Mboe/d in the fourth quarter of 2024. Permian assets remain a consistent contributor to the firm’s overall production. Production from the Permian region is expected in the range of 751-769 thousand barrels of oil equivalent per day (Mboe/d) for the fourth quarter of 2024. More than 50% of the company's total production is expected to come from prolific Permian assets.

Occidental utilizes its free cash flow and proceeds from non-core asset divestiture to redeem its outstanding debts. The company has repaid nearly $4 billion in debt during the third-quarter of 2024, which is nearly 90% of its near-term debt reduction target of $4.5 billion. Ongoing debt reduction will reduce its capital servicing expenses.

The company continued its stable performance in the last four quarters, resulting in an average surprise of 18.7%. Occidental's operational excellence, paired with a high-quality asset portfolio, allows it to deliver strong performance.

Image Source: Zacks Investment Research

Factors That Can Adversely Impact Occidental

Fluctuations in demand and volatile global and local commodity prices affect Occidental’s results of operations. The company remains exposed to fluctuating market prices of commodities, and as of Dec. 31, 2023, there were no active commodity hedges in place. If the commodity prices drop substantially from their current level, it will impact Occidental’s performance.

The company’s businesses operate in a highly competitive environment, which could affect its profitability and growth. It faces competition from peers to procure new reserves and replenish production volumes.

Occidental Returns Lower Than the Industry

Occidental’s return on equity (ROE) is lower than the industry average in the trailing 12 months. ROE of OXY was 15.98% compared with the industry average of 18.96%.

Image Source: Zacks Investment Research

Occidental’s Earnings Estimates Are Going Down

The Zacks Consensus Estimate for Occidental’s 2024 and 2025 earnings per share has moved down 7.28% and 21.96%, respectively, in the past 60 days.

Image Source: Zacks Investment Research

Occidental Trading at a Premium

Occidental shares are currently trading at a premium compared to its industry. OXY’s current trailing 12-month Enterprise Value/Earnings before Interest Tax Depreciation and Amortization (EV/EBITDA) is 5.89X compared with the industry average of 5.02X. It indicates that the company is presently marginally overvalued compared to its industry.

Image Source: Zacks Investment Research

Summing Up

Occidental’s focus on the Permian region, its ongoing initiatives to lower debts, strength in global operations and accretive acquisition will boost performance.

Yet, exposure to commodity price fluctuation and a very competitive oil and gas industry pose challenges for the company. Occidental’s premium valuation and lower return compared with the industry also do not make a strong case for the company.

Despite the headwinds, it is advisable to keep this Zacks Rank #3 (Hold) stock in your portfolio, given its strong domestic operations and exposure to the prolific Perman Basin. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
 

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

ConocoPhillips (COP) : Free Stock Analysis Report

Occidental Petroleum Corporation (OXY) : Free Stock Analysis Report

Cactus, Inc. (WHD) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research