Market Capitalization: $51.21 Billion
Shares Outstanding: 935.18 Million
Sector: Energy
Industry: Oil & Gas Exploration and Production
Analysis as of: October 14, 2024

1. Company Overview

Occidental Petroleum Corporation (NYSE: OXY) is an international energy company with operations in the United States, the Middle East, and North Africa. Founded in 1920 and headquartered in Houston, Texas, Occidental is engaged in the acquisition, exploration, and development of oil and gas properties. The company operates through three primary segments:

• Oil and Gas: Involves the exploration and production of oil, condensate, natural gas liquids (NGLs), and natural gas.
• Chemical (OxyChem): Manufactures and markets basic chemicals and vinyls, including chlorine, caustic soda, and polyvinyl chloride (PVC).
• Midstream and Marketing: Engages in gathering, processing, transporting, storing, purchasing, and marketing of oil, condensate, NGLs, natural gas, carbon dioxide, and power.

Key Highlights:

• Strategic Assets: Occidental holds significant assets in the Permian Basin, one of the most prolific oil-producing regions in the United States.
• Carbon Management: The company is investing in carbon capture, utilization, and storage (CCUS) technologies, aiming to reduce its carbon footprint and offer carbon management solutions.

2. Financial Performance

a. Revenue and Growth

• Trailing Twelve Months (TTM) Revenue (as of June 30, 2024): $27.12 Billion
• Year-over-Year (YoY) Revenue Growth (TTM): -14.00%

Revenue Trend (in Millions USD):

Analysis:

• Recent Decline: The TTM revenue decreased by 14% compared to the previous period, reflecting lower commodity prices and potential production declines.
• Historical Volatility: Revenue has shown significant fluctuations due to the cyclical nature of the oil and gas industry, influenced by global economic conditions and commodity price volatility.

b. Profitability

• Net Income (TTM): $3.87 Billion
• Earnings Per Share (EPS, TTM): $4.06
• Profit Margin: 14.28%
• Return on Equity (ROE): 14.43%

• Return on Assets (ROA): 4.54%

Analysis:

• Profitability Improvement: Despite revenue declines, Occidental maintained profitability with a net income of $3.87 billion and a profit margin of 14.28%.
• ROE and ROA: The ROE of 14.43% indicates effective use of shareholder equity, while the ROA of 4.54% reflects moderate efficiency in asset utilization.

c. Gross Margin and Operating Margin

• Gross Margin (TTM): 60.83%
• Operating Margin (TTM): 19.76%

Analysis:

• Strong Gross Margin: A gross margin of 60.83% suggests that the company retains a significant portion of its revenue after covering the cost of goods sold.
• Operating Efficiency: An operating margin of 19.76% indicates effective control over operating expenses relative to revenue.

d. Cash Flow

• Operating Cash Flow (TTM): $10.77 Billion
• Capital Expenditures (CapEx, TTM): – $6.76 Billion
• Free Cash Flow (FCF, TTM): $4.01 Billion
• Free Cash Flow Margin: 14.77%
• Free Cash Flow Per Share: $4.28

Analysis:

• Positive Cash Flow: Strong operating cash flow enables the company to fund capital expenditures, reduce debt, and return capital to shareholders.
• CapEx Investments: Significant capital expenditures reflect ongoing investments in exploration, production, and technological advancements, including carbon management initiatives.
• FCF Decline: Free cash flow decreased by 51.56% compared to the prior period, potentially due to increased CapEx or lower operating cash flow.

3. Balance Sheet

• Total Assets (as of June 30, 2024): $76.22 Billion
• Total Liabilities: $43.96 Billion
• Shareholders’ Equity: $32.26 Billion
• Total Debt: $20.82 Billion
• Cash & Equivalents: $1.85 Billion
• Net Debt Position: – $18.97 Billion
• Net Cash Per Share: – $20.28
• Debt-to-Equity Ratio: 0.65
• Current Ratio: 1.04
• Quick Ratio: 0.59
• Working Capital: $393 Million

Analysis:

• Liquidity: The current ratio of 1.04 indicates that Occidental has sufficient current assets to cover its current liabilities. The quick ratio of 0.59 suggests lower liquidity when inventories are excluded.
• Leverage: A debt-to-equity ratio of 0.65 reflects moderate leverage. The company has been focusing on debt reduction, as evidenced by the decrease in total debt from prior years.
• Net Debt: The significant net debt position of $18.97 billion requires ongoing attention to debt management, especially in volatile market conditions.

4. Valuation

• Current Stock Price (as of October 11, 2024): $54.76
• Price-to-Earnings (PE) Ratio (TTM): 14.15

• Forward PE Ratio: 15.18
• Price-to-Book (PB) Ratio: 2.09
• Price-to-Sales (PS) Ratio: 1.79
• Price-to-Free Cash Flow (P/FCF) Ratio: 12.79
• Enterprise Value (EV): $78.67 Billion
• EV/EBITDA Ratio: 6.43
• EV/EBIT Ratio: 14.68
• PEG Ratio: 1.38

Analysis:

• PE Ratio: A PE ratio of 14.15 is lower than the overall market average, potentially indicating undervaluation relative to earnings.
• Valuation Multiples: EV/EBITDA of 6.43 and EV/EBIT of 14.68 suggest reasonable valuation compared to industry peers.
• Dividend Yield: The stock offers a dividend yield of 1.61%, with a payout ratio of 21.68%, indicating a sustainable dividend policy.

5. Market Performance

• 52-Week Range: $49.75 – $71.19
• 52-Week Price Change: -14.41%
• Beta: 1.60

Analysis:

• Stock Decline: The stock price has decreased by 14.41% over the past year, reflecting market volatility and potential concerns over commodity prices.
• High Volatility: A beta of 1.60 indicates that the stock is more volatile than the overall market, aligning with the cyclical nature of the energy sector.

6. Financial Health and Risks

a. Liquidity

• Current Ratio: 1.04
• Quick Ratio: 0.59

Analysis:

• Adequate Liquidity: The current ratio suggests that Occidental can meet its short-term obligations. However, the lower quick ratio warrants monitoring, especially if cash flows decline.

b. Leverage

• Total Debt: $20.82 Billion
• Debt-to-Equity Ratio: 0.65
• Interest Coverage Ratio: 5.29

Analysis:

• Manageable Debt Levels: The company has reduced its debt from previous years, improving its financial flexibility.
• Interest Coverage: An interest coverage ratio of 5.29 indicates that earnings are sufficient to cover interest expenses.

c. Profitability and Cash Flow

• Consistent Profitability: The company has maintained profitability despite revenue fluctuations, aided by cost controls and asset optimization.
• Cash Flow Generation: Strong operating cash flow supports debt repayment, capital investments, and shareholder returns.

d. Operational Risks

• Commodity Price Exposure: Occidental’s revenues and profitability are highly sensitive to oil and gas prices, which are influenced by global supply and demand dynamics.
• Regulatory Environment: Changes in environmental regulations and policies related to carbon emissions could impact operational costs and capital expenditures.

e. Market Risks

• Economic Conditions: Global economic slowdowns can reduce energy demand, affecting prices and volumes.
• Geopolitical Risks: Operations in the Middle East and North Africa expose the company to geopolitical tensions and potential disruptions.

7. Conclusion

Pros:

• Strong Margins: High gross and operating margins indicate efficient operations and cost management.
• Debt Reduction Efforts: Significant progress in reducing debt enhances financial stability.
• Dividend and Share Buybacks: The company returns capital to shareholders through dividends and share repurchases.
• Strategic Initiatives: Investments in carbon capture and sustainable technologies position Occidental for long-term industry trends.

Cons:

• Commodity Price Volatility: Dependence on oil and gas prices introduces earnings unpredictability.
• High Net Debt: Despite reductions, the substantial net debt requires ongoing management.
• Industry Cyclicality: The energy sector is subject to cycles that can impact profitability and stock performance.
• Environmental Regulations: Increasing focus on renewable energy and stricter environmental policies may challenge traditional oil and gas operations.

Disclaimer:

This analysis is for informational purposes only and does not constitute investment advice or a recommendation to buy or sell any securities. Investing in stocks involves risks, including the potential loss of principal. Past performance is not indicative of future results. Investors should conduct their own research or consult a qualified financial advisor before making investment decisions.