Occidental Petroleum: Warren Buffett’s Influence and Positive Quarter Performance
Investors keeping an eye on Occidental Petroleum (NYSE: OXY) have noticed the impact of Warren Buffett’s stock strategies. Since early 2022, when Berkshire Hathaway (NYSE: BRK.A) began acquiring shares, the price has seen significant activity. With the stock recently dropping below a key price point, many are wondering if Buffett will step in and buy more shares.
Berkshire’s stake in Occidental is nearing 30% and could exceed 40% if further purchases occur, including warrants. Since June 2024, Berkshire has not bought any OXY shares according to MarketBeat, but another purchase could happen at any time.
Occidental Petroleum’s Successful Quarter: Debt Management
Despite facing challenges in Q3, Occidental Petroleum delivered a solid operational performance. The company reported $7.154 billion in net revenue, down 3.3% from last year. Yet, increased production in key energy regions and strong performance in the mid and downstream markets contributed to sequential growth despite the decline.
Revenue exceeded the consensus by nearly 50 basis points, showcasing the company’s resilience and operational improvements, largely credited to CEO Vicki Hollub and her team.
Key factors for investors include margins and cash flow. Although margins decreased due to lower oil and natural gas prices, efficiency gains helped offset these drops. Consequently, Occidental achieved operating and free cash flow margins of 53% and 21%, respectively, which promotes ongoing capital returns and debt reduction.
A major highlight from the report was a $4 billion reduction in debt, positioning the company to meet or exceed its immediate debt reduction goals in FQ4.
Occidental aims for gross debt of $15 billion or approximately 0.5X equity compared to Q3’s figures. Thanks to effective cash flow management and debt reduction, the company witnessed a cash build and a 20% increase in shareholder value.
Occidental Predicts Dividend Growth, Despite Potential Dilution
Occidental’s dividend remains secure and is projected to grow, albeit with some anticipated dilution in 2024. While the company has not drastically increased its share count, there has been a 1.7% rise in the float in recent quarters. Currently, the dividend yield sits at about 1.75%, with shares trading near $49.50. The outlook suggests that share sales will likely halt as the balance sheet strengthens, paving the way for a dividend increase. Although not in a bad position overall, Occidental’s balance sheet is weighed down by debt from past acquisitions. Presently, the company maintains a net long-term leverage ratio below 1X equity and allocates less than 30% of its projected earnings to dividends. The dividend has already increased three times since 2022, with another rise expected this quarter.
Reactions from analysts on this news have been mixed. According to MarketBeat.com, several revised price targets reflect a range of opinions. Importantly, 20 analysts show strong support for the Hold rating, with a bullish overall bias. Currently, 95% rate the stock as Hold or better, with 35% rating it as a Buy. The consensus price target suggests a potential upside of 30% for the stock.
Occidental Stock Approaches Key Support Level
As Occidental’s stock price declines, it approaches a crucial support level, near $48.25. This level has historical significance due to its alignment with support and resistance points from early 2020 and a large upward movement coinciding with Buffett’s initial investment period. A dip below this threshold might indicate a significant shift in market dynamics and could lead to a deeper decline. However, it seems likely that both the market and potentially Berkshire Hathaway will offer support at this crucial juncture.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
