JPMorgan raises Occidental stock target on production estimates

On Tuesday, JPMorgan revised its stock price target for Occidental Petroleum (NYSE:OXY), increasing it marginally from $58.00 to $59.00, while maintaining a Neutral rating on the company's shares. Currently trading at $52.68, OXY has attracted significant analyst attention, with analyst targets ranging from $51 to $89.

According to InvestingPro data, six analysts have recently revised their earnings estimates upward for the upcoming period, suggesting growing confidence in the company's prospects. The adjustment comes amid expectations of an in-line operational performance, with production estimates matching consensus and guidance. However, JPMorgan anticipates a cash flow shortfall for the fourth quarter of 2024 due to lower commodity price realizations.

The firm forecasts Occidental's fourth-quarter earnings per share (EPS) at $0.65, slightly below the Street's estimate of $0.68, and cash flow per share (CFPS) at $2.83, which is 2% below the consensus estimate of $2.90.

With a market capitalization of $49.4 billion and a P/E ratio of 12.7, OXY demonstrates strong financial metrics. InvestingPro analysis reveals the company's robust financial health, with an impressive EBITDA of $12.9 billion in the last twelve months. JPMorgan's projections include total production at 1,452 thousand barrels of oil equivalent per day (MBoe/d), with oil production at 733 MBoe/d, based on a capital expenditure program of approximately $1.8 billion for the quarter.

Despite forecasting free cash flow (FCF) of roughly $990 million for the fourth quarter of 2024, the analysts expect a cash outflow of $210 million from discontinued operations related to the Andes settlement and approximately $367 million for payments tied to the acquisition of Carbon Engineering. They also predict a working capital challenge in the first half of 2025 due to cash tax payments related to 2024 results, estimating a $500 million headwind.

Operationally, Occidental plans to maintain consistent activity levels year-over-year in 2025, focusing on its short-cycle unconventional business, which will receive 70-75% of its oil and gas capital expenditures. This strategy is aimed at providing flexibility to adjust activity levels in response to the unpredictable commodity price environment.

The company has experienced a 5% year-over-year decline in 6-month oil productivity in the Delaware Basin but has seen a 14% increase in the Midland Basin, thanks to the CrownRock properties.

Looking ahead to 2025, JPMorgan forecasts total production volumes of 1,461 MBoe/d, with oil volumes at 737 MBoe/d, based on a capital expenditure program of roughly $7.40 billion. The company has maintained dividend payments for 51 consecutive years and recently showed a dividend growth of 22.2%.

InvestingPro subscribers can access detailed analysis of OXY's financial health, which currently rates as "GOOD" based on comprehensive scoring across multiple factors. In the OxyChem business, the firm expects pre-tax income of $230 million for the fourth quarter of 2024, in line with guidance.

Occidental's OxyChem capital expenditures are projected to increase to $900 million in 2025, up from about $700 million in 2024, to accommodate capacity additions, expected to generate $325 million in incremental cash flow after mid-2026.

In the midstream/marketing segment, a pre-tax loss of $90 million is forecasted for the quarter, which is better than Occidental's guidance of a $150 million loss at the midpoint. This segment could benefit from the expiration of crude oil transportation contracts, providing a potential tailwind of $300 to $400 million over the next two years. However, reduced pre-tax income from natural gas transportation optimization might slightly offset this positive impact due to narrowing Waha differentials.

Occidental remains on track with its Direct Air Capture (DAC) project, with initial capacity expected to be complete by mid-2025 and design changes for the next phase anticipated to lower operational costs by mid-2026.

After updating its model, JPMorgan forecasts $4.74 billion of FCF for Occidental in 2025, equating to a roughly 10% FCF yield, based on a commodity price deck of $70 West Texas Intermediate (WTI) and $3.53 Henry Hub (HH). The revised price target reflects an increase in commodity prices since the last update.

Based on comprehensive analysis, InvestingPro's Fair Value calculation suggests that OXY is currently undervalued. Investors seeking deeper insights can access the full Pro Research Report, available exclusively to InvestingPro subscribers, which provides detailed analysis of OXY's valuation metrics, financial health, and growth prospects.

In other recent news, Occidental Petroleum has been making headlines with its strong Q3 performance, reporting an adjusted profit of $1.00 per diluted share and generating $1.5 billion in free cash flow. The company also reduced its debt by $4 billion and raised its full-year production guidance to a midpoint of 1.45 million barrels of oil equivalent per day for Q4.

In addition, Occidental Petroleum saw its stock rise following Berkshire Hathaway (NYSE:BRKa)'s significant investment of $409 million, showcasing investor confidence in the company's prospects. Susquehanna, however, reduced Occidental's stock price target to $65, while maintaining a positive rating, reflecting confidence in the company's strategic initiatives and operational success.

Another notable development is the anticipation of stringent U.S. sanctions on the Russian oil industry, which has led to increased investor interest in oil stocks, including Occidental Petroleum, due to the potential for higher oil prices and tighter markets.

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