Occidental Petroleum Corporation (OXY) Stock Analysis

Sector: Energy
Industry: Oil & Gas Exploration & Production
Analysis Date:  February 20, 2025

1. Company Overview

Occidental Petroleum Corporation (OXY) is one of the largest U.S.-based oil and gas exploration and production companies. It operates primarily in three segments:

1.  Oil & Gas (Upstream): Exploration, development, and production of crude oil, natural gas, and natural gas liquids (NGLs) in the United States, the Middle East, and Latin America.

2.  Chemical (OxyChem): Manufactures basic chemicals, vinyls, and other specialty chemical products.

3.  Midstream & Marketing: Transportation and marketing of hydrocarbons, plus gathering, processing, and storage.

Strategic Highlights:

• Carbon Management & CCUS: OXY invests in carbon capture, utilization, and storage (CCUS) solutions, aiming to become a carbon management leader.
• Asset Portfolio Optimization: The company has divested non-core assets to reduce debt and focus on high-return U.S. shale plays, especially in the Permian Basin.
• Shareholder Returns: OXY has reinstated and raised its dividend after severe cuts in 2020, and occasionally engages in share repurchases.

2. Financial Performance

a. Revenue & Growth

• TTM Revenue: $26.73 Billion
• Revenue Growth (YoY): -5.42%

Analysis:
Occidental’s revenue has dipped slightly year-over-year, reflecting the pullback in oil prices and production levels compared to the previous commodity cycle highs. However, OXY’s broad upstream, midstream, and chemical segments help mitigate price volatility.

b. Profitability

• TTM Net Income: $2.41 Billion
• EPS (TTM): $2.44
• Profit Margin (TTM): 9.01%

Analysis:
Despite a softer commodity price environment, OXY remains profitable, supported by relatively low operating costs in core shale basins, synergy captures from past acquisitions, and stable chemicals segment margins. Net income has moderated from peak levels when oil prices were higher but remains positive.

c. Margins

• Gross Margin (TTM): 63.32%
• Operating Margin (TTM): 19.68%
• EBITDA Margin (TTM): 48.51%

Analysis:
Occidental’s upstream operations and chemical business yield healthy gross margins (~63%). The operating margin near ~20% indicates effective cost discipline, though it’s down from prior peaks due to lower realized commodity prices. The robust EBITDA margin (~49%) underscores strong cash-generation capabilities typical of efficient E&P operators.

d. Free Cash Flow

• TTM Operating Cash Flow: $11.44 Billion
• TTM Capital Expenditures: -$7.02 Billion
• TTM Free Cash Flow: $4.42 Billion
• FCF Margin: 16.54%

Analysis:
OXY’s upstream and chemical operations produce substantial operating cash flow, though capital-intensive exploration and development reduce net FCF. Nonetheless, a ~16.5% FCF margin is solid for the energy sector. The company has used FCF for debt reduction, dividends, and opportunistic buybacks.

3. Balance Sheet & Liquidity

• Cash & Equivalents (TTM): $2.13 Billion
• Total Debt: $27.10 Billion
• Net Debt: $24.97 Billion (i.e., -$26.61 per share)
• Debt / Equity: 0.79

Analysis:
Occidental has significantly reduced its debt since acquiring Anadarko Petroleum in 2019. However, net debt of $25B remains considerable, though improved commodity pricing has allowed accelerated deleveraging. The company’s debt/equity of ~0.79 is lower than its pandemic-era peaks but still moderately high for an upstream operator.

4. Valuation

• P/E (TTM): 20.86
• Forward P/E: 13.94
• P/S (TTM): 1.74
• P/B (TTM): 1.85
• P/FCF (TTM): 10.82
• EV/EBITDA (TTM): 5.62

Analysis:
Occidental’s trailing P/E (~20.9) is elevated relative to many oil peers, likely reflecting expectations of improved future earnings or a strong appetite from certain investor segments (e.g., Warren Buffett’s Berkshire Hathaway). The forward P/E (~13.9) suggests analysts expect higher earnings. EV/EBITDA (~5.6) is relatively attractive for an integrated upstream operator, especially if commodity prices remain supportive.

5. Market Performance

• 52-Week Price Change: -15.75%
• Beta (5Y): 1.58

Analysis:
Shares have underperformed the broader market, down ~16% in the last year as oil prices retreated from 2022 highs. The stock’s high beta (1.58) indicates sensitivity to oil price swings and broader market volatility. Investor sentiment can quickly shift with changes in commodity outlooks.

6. Dividend & Shareholder Returns

• Dividend (TTM): $0.88 per share, yielding ~1.73%
• Dividend Growth (YoY): +22.22%
• Payout Ratio: 36.07%

Analysis:
Occidental drastically cut its dividend in 2020. Since then, it has gradually raised the payout, though it remains below pre-2020 levels. The current yield (~1.7%) is modest for an oil major but signals OXY’s desire to balance shareholder returns with debt repayment. The company also occasionally executes share buybacks, though net share count increased slightly yoy.

7. Risks & Considerations

1.  Commodity Price Volatility: OXY’s revenues and cash flows are highly sensitive to fluctuations in oil & gas prices.

2.  High Debt Load: Though improved, $25B+ net debt remains significant; higher interest rates or weaker commodity prices could slow deleveraging progress.

3.  Capital-Intensive Operations: Ongoing upstream exploration/development requires substantial capex. Missteps or cost overruns can erode FCF.

4.  Regulatory & ESG Pressures: Increasing environmental regulations, potential carbon taxes, and climate activism can impact future drilling and capital allocation.

5.  Share Price Volatility: A high beta (~1.58) indicates greater sensitivity to macro/commodity swings and investor sentiment.

8. Conclusion

Pros:

• Robust FCF Generation: $4.42B TTM free cash flow supports dividends, buybacks, and continued deleveraging.
• Improving Balance Sheet: Debt/equity ratio of ~0.79 is more manageable than pandemic highs, though still moderate.
• Strategic CCUS Initiatives: OXY is a pioneer in carbon capture solutions, potentially opening new revenue streams and favorable ESG positioning.

Cons:

• Commodity Price Sensitivity: Earnings and cash flows remain reliant on oil & gas price levels.
• Debt Overhang: Net debt of $25B constrains some flexibility, especially if commodity prices dip.
• Historic Dividend Cuts: The current yield (~1.7%) is well below prior yields, and management’s ability to increase payouts depends on stable or rising oil prices.
• High Beta Stock: Larger-than-average share price fluctuations due to macro/commodity volatility.

Final Note:
Occidental Petroleum has successfully navigated post-Anadarko integration and reduced debt significantly. The company’s robust free cash flow, carbon capture ambitions, and disciplined capital approach position it for potentially strong shareholder returns if oil prices remain supportive. However, investors should remain mindful of the cyclical nature of energy markets, the large absolute debt load, and OXY’s sensitivity to commodity price swings.

Disclaimer:
This analysis is for informational purposes only and does not constitute investment advice. Investing involves risks, including the potential loss of principal. Past performance is not indicative of future results. Always consult a qualified financial advisor before making any investment decisions.