Occidental Petroleum Investors, You Need to Know This

We've been asking ourselves recently if the market has placed a fair valuation on Occidental Petroleum. Let's dive into some of the fundamental values of this large-cap Energy company to determine if there might be an opportunity here for value-minded investors.

Trades Below Its Graham Number but Has an Elevated P/E Ratio:

Occidental Petroleum Corporation, together with its subsidiaries, engages in the acquisition, exploration, and development of oil and gas properties in the United States, the Middle East, North Africa, and Latin America. The company belongs to the Energy sector, which has an average price to earnings (P/E) ratio of 7.54 and an average price to book (P/B) ratio of 1.68. In contrast, Occidental Petroleum has a trailing 12 month P/E ratio of 11.1 and a P/B ratio of 2.84.

When we divide Occidental Petroleum's P/E ratio by its expected EPS growth rate of the next five years, we obtain its PEG ratio of -0.9. Since it's negative, the company has negative growth expectations, and most investors will probably avoid the stock unless it has an exceptionally low P/E and P/B ratio.

Low Leverage Levels and Exceptional EPS Growth:

2018-02-23 2019-02-21 2020-02-28 2021-02-26 2022-02-24 2023-02-27
Revenue (MM) $13,274 $18,934 $21,750 $16,261 $26,314 $37,095
Operating Margins 14% 37% 25% -17% 19% 38%
Net Margins 10.0% 22.0% -3.0% -91.0% 9.0% 36.0%
Net Income (MM) $1,311 $4,131 -$667 -$14,831 $2,322 $13,304
Net Interest Expense (MM) -$345 -$389 -$1,066 -$1,424 -$1,614 -$1,030
Depreciation & Amort. (MM) -$4,002 -$3,977 -$6,140 -$8,097 -$8,447 -$6,926
Earnings Per Share $1.71 $5.41 -$1.22 -$17.06 $1.56 $12.28
EPS Growth n/a 216.37% -122.55% -1298.36% 109.14% 687.18%
Diluted Shares (MM) 766 763 810 919 973 1,018
Free Cash Flow (MM) $8,121 $13,572 $35,687 $6,490 $13,304 $21,307
Capital Expenditures (MM) -$3,260 -$5,903 -$28,312 -$2,535 -$2,870 -$4,497
Net Current Assets (MM) -$13,184 -$12,592 -$58,325 -$52,672 -$44,498 -$33,638
Long Term Debt (MM) $9,328 $10,201 $38,537 $35,745 $29,431 $19,670
Net Debt / EBITDA 1.39 0.66 3.05 6.46 1.99 0.9

Occidental Petroleum has weak revenue growth and a flat capital expenditure trend, irregular cash flows, and just enough current assets to cover current liabilities. We also note that the company benefits from exceptional EPS growth and low leverage. However, the firm has weak operating margins with a positive growth rate.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.