Occidental Petroleum Corp (OXY, Financial) recently experienced a daily loss of -1.96% and has seen a 3-month decline of -5.52%. With an Earnings Per Share (EPS) of 4.57, investors are contemplating whether the stock is modestly overvalued. This article aims to delve into Occidental Petroleum's valuation, providing a comprehensive analysis for investors interested in this energy sector player.
Company Introduction
Occidental Petroleum is an independent oil and gas exploration and production company with a significant presence in the United States, Latin America, and the Middle East. As of the end of 2022, the company boasted net proved reserves of 3.8 billion barrels of oil equivalent. Occidental Petroleum's operations are primarily focused on oil and natural gas liquids, constituting 75% of its production, with natural gas making up the remaining 25%. Currently trading at $59.15 per share, Occidental Petroleum has a market capitalization of $51.60 billion. When compared to the GF Value of $50.43, which suggests the stock's fair value, Occidental Petroleum appears modestly overvalued. This sets the stage for a deeper exploration into the company's valuation.
Understanding the GF Value
The GF Value is a unique valuation metric that represents a stock's intrinsic value. It is determined by considering historical trading multiples like PE, PS, PB ratios, and Price-to-Free-Cash-Flow. Additionally, a GuruFocus adjustment factor is applied, reflecting the company's past performance and growth. Finally, future business performance estimates are factored in to ascertain the stock's fair value.
Occidental Petroleum's stock is deemed modestly overvalued by GuruFocus' valuation method. The GF Value Line, which indicates the fair value for the stock, suggests that Occidental Petroleum's current share price exceeds what is considered fair based on its historical trading patterns, past business growth, and projected future performance. This assessment implies that the long-term return on Occidental Petroleum's stock may be lower than the company's business growth potential.
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Financial Strength
Assessing a company's financial strength is crucial in mitigating the risk of permanent capital loss. Key indicators such as the cash-to-debt ratio and interest coverage are essential in evaluating financial robustness. Occidental Petroleum's cash-to-debt ratio stands at a low 0.03, ranking below the majority of its peers in the Oil & Gas industry. With an overall financial strength rating of 5 out of 10, Occidental Petroleum's financial situation is deemed fair, though potential investors should be aware of its relatively high debt levels.
Profitability and Growth
Investing in companies with a track record of profitability, like Occidental Petroleum, which has been profitable for 6 out of the past 10 years, tends to be less risky. The company's impressive operating margin of 25.42% stands out in the Oil & Gas industry, indicating robust performance potential. With revenues of $29.30 billion and an Earnings Per Share (EPS) of $4.57 over the past 12 months, Occidental Petroleum's profitability is ranked as fair by GuruFocus.
Growth is a pivotal valuation factor, as companies that expand more rapidly tend to generate greater shareholder value, particularly when the growth is profitable. Occidental Petroleum's average annual revenue growth rate of 12.3% is commendable, surpassing more than half of its industry counterparts. Moreover, the 3-year average EBITDA growth rate of 33.1% positions the company favorably against industry peers.
ROIC vs. WACC
Comparing Return on Invested Capital (ROIC) with the Weighted Average Cost of Capital (WACC) provides further insight into Occidental Petroleum's profitability. Ideally, a company's ROIC should exceed its WACC, indicating efficient capital allocation. Occidental Petroleum's ROIC of 8.64 is slightly below its WACC of 9.63, suggesting that the company may not be generating sufficient returns on its investments.
Conclusion
In summary, Occidental Petroleum is currently viewed as modestly overvalued. The company's financial health is fair, and its profitability ranks adequately within the Oil & Gas industry. Its growth outperforms a substantial portion of its competitors. For a more detailed financial overview of Occidental Petroleum, investors can review 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.
