OXY stock price is about to go up

OXY stock price outlook

Key points

  • Occidental Petroleum reported another solid quarter, beating analysts’ estimates.
  • The company continues to pay down debt, repurchase shares and pay dividends, issuing a 20% increased distribution for 2024.
  • The stock is in deep value territory and could soon advance 15% to 30%.
  • 5 stocks we like better than Occidental Petroleum

THE Western oil NYSE: OSSI The investment thesis has become more bullish over the past two years, setting the stock up for a substantial rally. Q4 results aside, the market appears poised to recover now and could move higher soon. The technical setup is solid, with price action at a low, the Stochastic sending a strong signal and the MACD ready to follow. Assuming the market follows this signal, it could advance 15% to 30% with the possibility of setting new highs before the middle of the year.

There is a risk that OXY stock could collapse through support at $58, but it is unlikely for two reasons. The first is that analysts continue to support the market despite lowering their price targets. The consensus is down from last year, but is still 22% higher than the price action, and there is a minimal level of sentiment consistent with the price action. The analyst’s lowest target is $59, suggesting this stock is in deep value territory. The most recent review, issued after fourth-quarter results, is from Stephens, who reiterates an Overweight rating and a $74 price target.

The second reason why OXY is unlikely to fall substantially below $58 is Warren Buffett. Mr. Buffett and Berkshire Hathaway bought this stock when it reached current levels; the last one was in December last year and further purchases are expected. At last count, Berkshire owned 25% of the diluted company with permission to buy up to 50%. Berkshire is buying OXY because cash flow is robust and management is committed to strengthening the balance sheet and realigning it in favor of common shareholders.

Occidental Petroleum reported a better-than-expected quarter

Occidental Petroleum reported a decline in revenue and earnings compared to last year due to deleveraging oil prices. However, the 9.6% decline is 960 basis points higher than the Marketbeat.com consensus because the average realized price has not fallen as quickly as analysts expected and production is rising. The company beat its average production target by 0.6%, helping to sustain higher-than-expected revenue levels, with some strength expected this year. The company is targeting plate production, but it could easily surpass that as it has in recent quarters. OxyChem and Midstream also performed above expectations.

Margin was also deleveraged on oil prices, but beat expectations, helped by volume. EBITDA and net income margins contracted by several hundred basis points, but were lower than expected, leaving liquidity, cash flow and earnings above consensus. Adjusted diluted earnings of $0.74 were higher by a cent, with a substantial margin improvement expected for next year. The company does not provide specific information; analysts expect revenue growth of 7% with earnings up 45%.

Cash flow and return on capital are a priority for Occidental Petroleum

Occidental focuses much of its liquidity on reducing debt to free up cash flow for further shareholder returns. Efforts in 2023 included reducing the number of preferred shares, repurchasing common stock, reducing debt and building equity capital. The results include a 20% increase in dividend payout for 2024, a 2.3% increase in share capital, and plans to further reduce debt and preferred stock over the course of the year. The long-term plan is to shift focus on return on capital towards increasing the pace of buybacks as cash flow is freed up.

The technical outlook is favorable for this energy stock. The stock is not soaring based on the results, but the support is solid and the price action is advancing. The 2.5% gain is a trend following signal on the weekly chart, but there are hurdles to overcome. The stock is still below potential resistance at the 30-day moving average, which could keep it lower or move sideways within its range. If the market can break above this and sustain the support, the chances of retesting recent highs and moving to new highs are high.

OXY stock chart

Before you consider Occidental Petroleum, you’ll want to hear this.

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