In today's trading, Occidental Petroleum (OXY, Financial) experienced a daily loss of -3.88%, making a 3-month gain of 2.91%. With an Earnings Per Share (EPS) of 5.89, the question arises: is the stock modestly overvalued? This article will take a deep dive into the valuation analysis of Occidental Petroleum to answer this question. Let's delve in.
Company Introduction
Occidental Petroleum Corp (OXY, Financial) is an independent exploration and production company with operations in the United States, Latin America, and the Middle East. As of the end of 2022, the company reported net proved reserves of 3.8 billion barrels of oil equivalent. Net production averaged 1,159 thousand barrels of oil equivalent per day in 2022 at a ratio of 75% oil and natural gas liquids and 25% natural gas.
With a current price of $62.65 per share and a market cap of $55.40 billion, Occidental Petroleum's stock is believed to be modestly overvalued when compared to its GF Value of $49.69. This discrepancy sets the stage for a more profound exploration of the company's value.
Understanding GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. The GF Value Line provides a visual representation of the stock's fair value, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates.
According to GuruFocus Value calculation, Occidental Petroleum's stock is modestly overvalued. This assessment suggests that the long-term return of its stock is likely to be lower than its business growth.
Financial Strength
When investing in a company, it's crucial to assess its financial strength. Companies with poor financial strength pose a higher risk of permanent loss. A good way to understand a company's financial strength is by looking at its cash-to-debt ratio and interest coverage. Occidental Petroleum has a cash-to-debt ratio of 0.02, which is worse than 92.27% of 1035 companies in the Oil & Gas industry. This places the overall financial strength of Occidental Petroleum at 5 out of 10, indicating fair financial strength.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Occidental Petroleum has been profitable 6 over the past 10 years. Over the past twelve months, the company had a revenue of $31.50 billion and Earnings Per Share (EPS) of $5.89. Its operating margin is 29.55%, which ranks better than 74.9% of 988 companies in the Oil & Gas industry. Overall, the profitability of Occidental Petroleum is ranked 7 out of 10, indicating fair profitability.
Growth is a crucial factor in the valuation of a company. A faster-growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Occidental Petroleum is 12.3%, which ranks better than 53.83% of 862 companies in the Oil & Gas industry. The 3-year average EBITDA growth rate is 33.1%, which ranks better than 71.67% of 826 companies in the Oil & Gas industry.
ROIC vs. WACC
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. During the past 12 months, Occidental Petroleum's ROIC is 10.98 while its WACC came in at 10.52.
Conclusion
Overall, Occidental Petroleum (OXY, Financial) stock is believed to be modestly overvalued. The company's financial condition is fair, and its profitability is fair. Its growth ranks better than 71.67% of 826 companies in the Oil & Gas industry. To learn more about Occidental Petroleum stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
