On Wednesday, CFRA adjusted its outlook on Occidental Petroleum (NYSE:OXY), reducing the price target from $56.00 to $54.00 while maintaining a Hold rating on the stock. The revised target reflects a valuation of 6.4 times the projected enterprise value to 2025 earnings before interest, taxes, depreciation, and amortization (EBITDA), which aligns with Occidental's historical forward average.
The firm has also revised its earnings per share (EPS) estimates, lowering the 2024 forecast by $0.18 to $3.60 and the 2025 prediction by $1.36 to $3.16. This adjustment comes after Occidental reported a third-quarter EPS of $1.00, surpassing the consensus estimate by $0.25. The company's production for the same quarter was 1.41 million barrels of oil equivalent per day (mmboe/d), marking a 15.5% year-over-year increase, with natural gas production showing significant growth of 20%.
Despite the positive production figures, Occidental's financial health is under scrutiny due to its high debt levels. The company managed to repay $4.0 billion in debt during the third quarter, yet long-term debt remained substantial at $25.5 billion. Occidental's net debt to capital ratio stands at 41%, which is considerably higher than its industry peers. The company maintains a medium-term debt target of $15 billion, but the firm expresses concern over reaching this goal without an uptick in spot prices for oil and gas, which they view pessimistically for 2025.
Occidental has been making strides in reducing costs, as evidenced by a 12% sequential decrease in lease operating expenses per barrel of oil equivalent. However, the firm anticipates that without a recovery in oil and gas prices, Occidental's free cash flow might be constrained, potentially complicating the company's financial management. Despite these challenges, Occidental's stock currently offers a dividend yield of 1.7%.
InvestingPro Insights
Recent data from InvestingPro sheds additional light on Occidental Petroleum's financial position and market performance. The company's market capitalization stands at $47.78 billion, with a P/E ratio of 11.72, indicating that the stock may be undervalued relative to its earnings. This aligns with the article's discussion of the company's financial health and CFRA's Hold rating.
InvestingPro Tips highlight that Occidental has maintained dividend payments for 51 consecutive years, demonstrating a strong commitment to shareholder returns despite the challenges mentioned in the article. This consistency is particularly noteworthy given the company's high debt levels and the industry's volatility.
Additionally, Occidental's profitability over the last twelve months, as noted by InvestingPro, supports the article's mention of positive production figures and cost reduction efforts. However, the stock is trading near its 52-week low, which could be reflective of the concerns raised about debt levels and potential cash flow constraints.
For investors seeking a more comprehensive analysis, InvestingPro offers 7 additional tips for Occidental Petroleum, providing a deeper understanding of the company's financial health and market position.
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