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Bear of the Day: Occidental (OXY)

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Occidental Petroleum Corp. (OXY - Free Report) is adjusting to the new reality of oil prices under $60. This Zacks Rank #5 (Strong Sell) is seeing its full year earnings estimates cut thanks to the plunge in prices.

Occidental is an oil and natural gas exploration and production company which also has a chemical division and midstream and marketing. It drills in the Permian Basin, Colombia and the Middle East.

2019 Estimates Cut

2018 was a year of recovery for the energy companies.

Occidental made just $0.89 a share in 2017. But in 2018, the Zacks Consensus Estimate is looking for earnings of $4.92. That's down just 11 cents from $5.03 just 90 days ago, which is impressive given the decline in oil prices, and it's also earnings growth of 452%.

But oil prices back under $50 has meant big earnings estimate cuts from the analysts for 2019.

9 have lowered their estimates on 2019 in the last 30 days, although one has raised in the last week. Still, this has crushed the earnings estimate. It has sunk to $3.63 from $6.22 just 3 months ago.

That's an earnings decline of 26%.

It's not hard to see why it's a Zacks Rank #5 (Strong Sell) at this time. The magnitude of the downward estimate revisions are huge and the analysts are in agreement.

Is the Dividend "Safe"?

Occidental pays one of the highest dividends in the E&P industry. It is currently yielding 4.8%.

In an investor presentation given at the Goldman Sachs Global Energy Conference on Jan 7-8, 2019, it laid out the cash flow and production scenarios based on the price of oil.

At $40 WTI it will maintain its production and the dividend.

The company has actually seen 16 consecutive years of dividend growth.

Additionally, it's in the midst of a $2 billion share buyback program.

It expects to complete $1.3 billion in share repurchases in 2018 and finish the program in 2019.

Are Shares on Sale?

The energy stocks have taken a dive, right along with crude.

Occidental shares are down 22% over the last 6 months, but have rebounded off their December 2018 lows.

Still, they're trading with a forward P/E of 17.7 because of those estimate cuts. They aren't a bargain on a P/E basis at this time.

Investors should get the dividend as a reward for their patience, however.

But there's really nowhere to hide in the energy shares right now. The Integrateds are at the bottom 4% of the Zacks Industry Rank.

Additionally, Occidental isn't the only Zacks Rank #5 (Strong Sell). ConocoPhillips (COP - Free Report) and Chevron (CVX - Free Report) are as well.

Investors with a short term horizon might want to wait for the earnings estimates to turn around before diving in.

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