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On Jun 13, we have issued an updated research report on Occidental Petroleum Corporation (OXY - Analyst Report). A disciplined investment in exploration and production program backed by a stable financial position and geographically diversified operations are expected to boost the oil and gas company’s future performance. However, volatile commodity prices and strict regulations are our major causes of concern.

Occidental Petroleum, a Zacks Rank #3 (Hold) stock, reported mixed results in first-quarter 2014. In the quarter, the company’s earnings per share surpassed the Zacks Consensus Estimate while revenues missed the same. On a year-over-year basis, both top as well as bottom line improved primarily on the back of higher sales from the company’s Oil and Gas and Chemical segments.

Occidental Petroleum is an organization, operating in the U.S and several other international territories. The company follows an active exploration initiative to expand its reserve base. In the first quarter, Occidental Petroleum invested $2.27 billion and plans to spend $10.2 billion in 2014. The company expects its steady operations in the Permian Basin, the Al Hosn gas project in the United Arab Emirates, BridgeTex Pipeline and new Johnsonville chlor-alkali plants to play an important role to boost its future results.

Occidental Petroleum is currently streamlining its operations. The company has already sold its Hugoton Field assets and a part of its investment in the General Partner of Plains All American Pipeline, L.P. (PAA - Analyst Report). Occidental Petroleum will also spin-off its Californian oil and natural gas assets. These initiatives will enable the company to proficiently manage its operations.

Occidental Petroleum maintained a stable financial position primarily on the heels of strong cash generation capacity. As of Mar 31, 2014, the company had cash and cash equivalents of $2.3 billion. In the fist three months of 2014, Occidental Petroleum’s cash flow from operating activities was approximately $2.7 billion.

Apart from investment in growth projects, Occidental Petroleum continues to pursue several initiatives including effective share repurchase program and regular dividend payment to improve shareholders’ wealth. During first-quarter 2014, the company repurchased 10.5 million shares of its common stock. Moreover, the company distributed around $514 million during the first quarter as cash dividend.

On the flip side, Occidental Petroleum’s performance primarily depends on the commodity price movements. The prices of the company’s prime products like oil and natural gas are often volatile. An economic slowdown can impact demand for commodities, thereby reducing commodity prices. This will likely impact Occidental Petroleum’s results.

Key Picks from the Sector

Some better-ranked stocks in the sector include Athlon Energy Inc. (ATHL - Snapshot Report) and Encana Corporation (ECA - Analyst Report), each carries a Zacks Rank #1 (Strong Buy).

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