Oil & Gas Drilling company Occidental Petroleum is standing out today, surging to $61.83 and marking a 3.65% change. In comparison the S&P 500 moved only -0.35%. OXY is -14.22% below its average analyst target price of $72.08, which implies there is more upside for the stock. However, the average analayst rating for the stock is hold -- a more pessimistic outlook than you might expect. Over the last year, Occidental Petroleum shares have outperformed the S&P 500 by 19.16%, with a price change of 5.04%.
Occidental Petroleum Corporation is an American company engaged in hydrocarbon exploration in the United States, the Middle East, and Colombia as well as petrochemical manufacturing in the United States, Canada, and Chile. The company is an energy company. As investments, energy companies may display higher than average volatility because the price and availability of basic materials needed for production is dependent on geopolitical events. The shift towards renewable forms of energy may lessen this dependency, but is far from complete and may involve new risks of its own.
Occidental Petroleum's trailing 12 month P/E ratio is 6 based on its trailing EPS of $12.4. The company has a forward P/E ratio of according to its forward EPS of $6.05 -- which is an estimate of what its earnings will look like in the next quarter.
As of the first quarter of 2023, the average Price to Earnings (P/E) ratio for US energy companies is 7.54, and the S&P 500 has an average of 15.97. The P/E ratio consists in the stock's share price divided by its earnings per share (EPS), representing how much investors are willing to spend for each dollar of the company's earnings. Earnings are the company's revenues minus the cost of goods sold, overhead, and taxes.
We can take the price to earnings analysis one step further by dividing the P/E ratio by the company’s projected five-year growth rate, which gives us its Price to Earnings Growth, or PEG ratio. This ratio is important because it allows us to identify companies that have a low price to earnings ratio because of low growth expectations, or conversely, companies with high P/E ratios because growth is expected to take off.
Occidental Petroleum's PEG ratio of 1.218 indicates that its P/E ratio is fair compared to its projected earnings growth. In other words, the company’s valuation accurately reflects its estimated growth potential. The caveat, however, is that these growth estimates could turn out to be inaccurate.
To better understand the strength of Occidental Petroleum's business, we can analyse its operating margins, which are its revenues minus its operating costs. Consistently strong margins backed by a positive trend can signal that a company is on track to deliver returns for its shareholders. Here's the operating margin statistics for the last four years:
| Date Reported | Revenue (k) | Operating Expenses (k) | Operating Margin | YoY Growth |
|---|---|---|---|---|
| 2022-12-31 | $36,634,000 | $2,898,000 | 79.3% | 8.1% |
| 2021-12-31 | $25,956,000 | $2,730,000 | 73.36% | 13.98% |
| 2020-12-31 | $17,809,000 | $2,478,000 | 64.36% | 71.81% |
| 2019-12-31 | $20,911,000 | $5,720,000 | 37.46% | -30.73% |
| 2018-12-31 | $17,824,000 | $1,027,000 | 54.08% | n/a |
- Average operating margins: 61.71 %
- Average operating margins growth rate: 12.63 %
- Coefficient of variability (lower numbers indicate less volatility): 27 %
Occidental Petroleum's financial viability can also be assessed through a review of its free cash flow trends. Free cash flow refers to the company's operating cash flows minus its capital expenditures, which are expenses related to the maintenance of fixed assets such as land, infrastructure, and equipment. Over the last four years, the trends have been as follows:
| Date Reported | Cash Flow from Operations (k) | Capital Expenditures (k) | Free Cash Flow (k) | YoY Growth |
|---|---|---|---|---|
| 2022-12-31 | $16,810,000 | $4,497,000 | $12,313,000 | 62.78% |
| 2021-12-31 | $10,434,000 | $2,870,000 | $7,564,000 | 432.68% |
| 2020-12-31 | $3,955,000 | $2,535,000 | $1,420,000 | 39.22% |
| 2019-12-31 | $7,375,000 | $6,355,000 | $1,020,000 | -62.14% |
| 2018-12-31 | $7,669,000 | $4,975,000 | $2,694,000 | n/a |
- Average free cash flow: $5,002,200,000.00
- Average free cash flown growth rate: 94.51 %
- Coefficient of variability (lower numbers indicating more stability): 97 %
With its positive cash flow, the company can not only re-invest in its business, it can offer regular returns to its equity investors in the form of dividends. Over the last 12 months, investors in OXY have received an annualized dividend yield of 1.21% on their capital.
Another valuation metric for analyzing a stock is its Price to Book (P/B) Ratio, which consists in its share price divided by its book value per share. The book value refers to the present liquidation value of the company, as if it sold all of its assets and paid off all debts.
Occidental Petroleum's P/B ratio indicates that the market value of the company exceeds its book value by a factor of 3, so the company's assets may be overvalued compared to the average P/B ratio of the Energy sector, which stands at 1.68 as of the first quarter of 2023.
Occidental Petroleum is by most measures fairly valued because it has a very low P/E ratio, an elevated P/B ratio, and a pattern of improving cash flows with an upwards trend. The stock has mixed growth prospects because it has a a negative PEG ratio and strong operating margins with a positive growth rate. We hope you enjoyed this overview of OXY's fundamentals.
