On Wednesday, Barclays initiated coverage on Occidental Petroleum (NYSE:OXY), assigning an Equal Weight rating to the stock with a price target of $73.00. The firm pointed to Occidental's strong and diversified asset portfolio, which includes high-quality U.S. shale and low-decline conventional assets. However, concerns were raised regarding the company's above-average leverage and the limited medium-term cash return potential.
The analysis by Barclays highlighted that while Occidental Petroleum demonstrates strong capital efficiency and asset productivity, its cash generative capacity is restricted due to significant financing costs. This results in a free cash flow (FCF) yield that is below average when compared to its peers. Despite the addition of valuable undeveloped resources from the CrownRock acquisition, the deal's debt financing further elevates Occidental's leverage.
Barclays estimates that Occidental's organic free cash flow (FCF) will trail behind its peers, projecting 7.5% for 2024 and 8.7% for 2025. These figures are considerably lower than the large-cap/oil-weighted exploration and production (E&P) average of 11.7% and 11.8%, respectively.
The firm also noted that Occidental's net debt to EBITDX ratio is expected to stand at 1.5 times by the end of 2024 and 1.2 times by the end of 2025. These levels surpass the average of the peer group, which is at 0.7 times and 0.5 times, respectively.
Barclays also mentioned that a robust macroeconomic environment could potentially help Occidental Petroleum achieve its $15 billion debt target sooner and might expedite the asset sale program.
However, they anticipate that the company may not commence significant payouts until 2026 at the earliest. The price target of $73 is based on a blended target multiple of 6.5 times the firm's 2025 estimated enterprise value to EBITDX and 1 times net asset value (NAV).
InvestingPro Insights
In light of Barclays' recent coverage on Occidental Petroleum (NYSE:OXY), InvestingPro provides additional context with real-time data and analysis that may be of interest to investors. Occidental's market capitalization stands at $60.77 billion, and the company has a P/E ratio of 16.19, adjusted to 18.56 for the last twelve months as of Q4 2023. Despite a revenue decline of 22.87% over the same period, the company maintains a strong gross profit margin of 60.07%. An important point to consider is Occidental's dividend track record; the company has maintained dividend payments for 51 consecutive years, with a current dividend yield of 1.28% as of the beginning of 2024.
Two InvestingPro Tips for Occidental Petroleum highlight the stock's current status and performance. Firstly, the stock's RSI suggests it is in overbought territory, which could be of interest to traders monitoring technical indicators. Secondly, Occidental has shown a strong return over the last three months, with a 21.44% price total return, aligning with Barclays' recognition of the company's strong asset portfolio. For further insights, investors can find additional InvestingPro Tips for Occidental Petroleum, which may guide investment decisions, by visiting InvestingPro. Additionally, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, and discover the 7 other InvestingPro Tips that could provide a deeper understanding of Occidental's financial health and market position.
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