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Goldman Sachs has resumed coverage on Occidental Petroleum (NYSE: OXY) with a Neutral rating and established a price target of $55.00.
The firm's analysis followed the completion of Occidental Petroleum's acquisition of CrownRock, which was a significant cash and stock deal valued at approximately $12 billion. This strategic move has notably increased Occidental's presence in the Permian Basin.
The acquisition by Occidental is viewed positively, as the company is recognized for its strong operational history in the region.
The deal is expected to enhance Occidental's scale within the Permian Basin, an area known for its rich oil resources. The transaction, however, has also impacted the company's financial leverage, raising its Net debt to EBITDA ratio to 1.7x from the previous 1.2x.
The increase in leverage has shifted Occidental's focus towards debt reduction rather than returning capital to shareholders. This change in financial strategy is a direct result of the acquisition's effect on the company's balance sheet. According to Goldman Sachs, this shift is a key factor in maintaining a Neutral stance on the stock at this time.
The firm also updated estimates for other companies in the sector, including Apache Corporation (NASDAQ:APA), Murphy Oil Corporation (NYSE:MUR), Marathon Oil Corporation (NYSE:MRO), and Hess Corporation (NYSE:HES), to reflect recent changes in commodity prices. These updates are part of a broader analysis of the energy sector's financial health and performance.
In other recent news, Occidental Petroleum Corporation (NYSE:OXY) reported strong performance in its Q2 2024 earnings call with the highest quarterly production in four years, generating $1.3 billion in free cash flow.
The company has made significant strides in its debt reduction efforts, reducing its principal debt by $3 billion in Q3 2024, achieving nearly 85% of its $4.5 billion debt reduction target. These developments are part of Occidental's broader divestiture plan, which has amassed approximately $1.7 billion in closed or announced sales this year.
In a related development, CrownRock Holdings, L.P. intends to sell 29,560,619 shares of Occidental's common stock through an underwritten secondary public offering managed by J.P. Morgan, Morgan Stanley, and RBC Capital Markets. Meanwhile, Western Midstream Partners (NYSE:WES), LP, initiated a secondary public offering of 19 million common units managed by Barclays.
Furthermore, Louisiana braces for Hurricane Francine, prompting oil and gas producers, including Exxon Mobil (NYSE:XOM), Shell (LON:SHEL), Chevron (NYSE:CVX), and Enbridge (NYSE:ENB), to cease operations in the Gulf of Mexico.
This event poses a significant challenge to the area's liquefied natural gas (LNG) export plants, including Sempra's Cameron LNG, Venture Global LNG's Calcasieu Pass LNG, and Tellurian (NYSE:TELL)'s Driftwood LNG, which are all in Francine's projected path.
InvestingPro Insights
Recent data from InvestingPro provides additional context to Goldman Sachs' analysis of Occidental Petroleum (OXY). The company's market capitalization stands at $49.8 billion, with a P/E ratio of 12.19, indicating a relatively modest valuation compared to earnings. This aligns with Goldman's Neutral rating, suggesting the stock may be fairly valued at current levels.
InvestingPro Tips highlight that OXY has maintained dividend payments for 51 consecutive years, demonstrating a commitment to shareholder returns despite the recent shift towards debt reduction noted by Goldman Sachs. The stock is also trading near its 52-week low, which could present an opportunity for investors who agree with the positive view on the CrownRock acquisition.
It's worth noting that while 9 analysts have revised their earnings downwards for the upcoming period, InvestingPro still predicts the company will be profitable this year. This mixed outlook reflects the complexity of OXY's current position following the significant acquisition.
For investors seeking a more comprehensive analysis, InvestingPro offers 5 additional tips on Occidental Petroleum, providing deeper insights into the company's financial health and market position.
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