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Analyst Blog

On Sep 27, 2013, we have reiterated our Neutral recommendation on Occidental Petroleum Corporation (OXY - Analyst Report). The company currently has a Zacks Rank #2 (Buy).

Why the Reiteration?

Occidental Petroleum’s earnings per share in the previous quarter were $1.58 per share, missing the Zacks Consensus Estimate by 3 cents and the prior-year figure by 6 cents. However, the company’s revenues of $5,962 million were $13 million higher than the Zacks Consensus Estimate. Quarterly revenues increased 3.4% year over year due to higher contribution from the company’s Oil and Gas, Chemicals, and Midstream, Marketing and Other segments.

We view Occidental Petroleum as an organization with a stable capital investment program and higher operating efficiencies on the back of strong financial position. In addition, steady production growth from the company’s diversified asset base located at different locations and scheduled progress at the Al Hosn gas project in Abu Dhabi are expected to act as catalysts to boost its future results.

Apart from the project investments, Occidental Petroleum continues to carry out several cost-cutting measures, including reduction of domestic wells to handle higher international operating expenses. This will help the company to improve its margins going forward.

On the flip side, we believe that Occidental Petroleum’s over dependence on crude oil price movement may be affecting its anticipated growth, as it is a crude oil-levered organization with no refining activities.

We are also cautious about the risks related to the damages of exploration and production infrastructures, natural calamities and political instability, which might impede the company’s upcoming operations.

Other Stocks to Consider

Other stocks from the sector that are presently performing well include Anadarko Petroleum Corporation (APC - Analyst Report), Matador Resources Company (MTDR - Snapshot Report) and Stone Energy Corporation (SGY - Analyst Report), with a Zacks Rank #1 (Strong Buy).

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