OXY Trading at a Premium at 4.99X: Time to Hold or Sell the Stock?

Occidental Petroleum Corporation’s OXY shares are currently trading at a premium compared to the Zacks Oil and Gas - Integrated - United States industry. OXY’s current trailing 12-month Enterprise Value/Earnings before Interest, Tax, Depreciation and Amortization (EV/EBITDA) is 4.99X compared with the industry average of 4.76X. It indicates that the company is presently marginally overvalued compared to its industry.

Occidental, being a low-cost operator and possessing high-quality assets in different locations across the globe, has a competitive advantage over its peers. Yet, as of Dec. 31, 2024, there were no active commodity hedges in place, so if commodity prices drop substantially, it can adversely impact Occidental’s performance.

OXY Stock Trading at a Premium

Another company operating in this space, Hess Corporation HES, is trading at an EV/EBITDA of 7.41X, at a premium compared to its industry.

Occidental’s shares have gained 10.3% last month, outperforming its industry’s rally of 8.4%.

Price Performance (One Month)

Should you consider adding OXY stock to your portfolio only based on positive price movements? Let’s delve deeper and find out the factors that can help investors decide whether it is a good entry point to add OXY stock to their portfolio.

Factors Contributing Toward OXY Stock’s Stable Performance

Occidental continues to gain from its strategic acquisition, which boosts its production volumes and the top line. The acquisition of CrownRock assets boosted OXY’s production volumes and lowered its well operating costs.

Occidental's primary objective is to enhance its balance sheet and reduce capital servicing costs. In 2024, the company successfully met its short-term debt reduction goal of $4.5 billion and plans to further decrease its outstanding debt by mid-2027 using free cash flow and proceeds from non-core asset divestitures.

The company's emphasis on developing its Permian Basin resources has proven advantageous, with strong performance reported in this core area. For 2025, Occidental anticipates total production to range between 1,390 and 1,440 thousand barrels of oil equivalent per day (Mboe/d), with the Permian region contributing approximately 760–786 Mboe/d.

International production for 2025 is projected to fall between 226 and 236 Mboe/d. The company is employing advanced seismic imaging techniques to discover new oil and gas reserves. These seismic surveys are essential for exploration, providing more precise insights into potential drilling locations compared to traditional methods.

As a low-cost operator with high-quality assets globally, Occidental holds a competitive edge over many of its industry peers. Its disciplined capital investments have strengthened its infrastructure, with over $7 billion invested in 2024. The company plans to invest between $7.2 billion and $7.4 billion in 2025, significantly more than Hess Corporation’s planned $4.5 billion investment in the same year.

Occidental also continues to benefit from strategic acquisitions that enhance production capacity and revenues. The acquisition of CrownRock assets, for instance, has not only increased production volumes but also reduced per-well operating costs.

OXY Stock’s Earnings Surprise History

The stable performance of the company allowed it to surpass earnings estimates in each of the last four reported quarters, the average earnings surprise being 24.34%.

Another stock, ConocoPhillips COP, operating in the space, surpassed earnings estimates in three out of the last four quarters and missed expectations in a quarter, resulting in an average positive surprise of 1.94%.

Headwind for OXY Stock

Occidental's operational performance is influenced by changes in demand and the volatility of both global and local commodity prices. The company remains vulnerable to fluctuations in the commodity markets, and as of Dec. 31, 2024, it had no active commodity hedging strategies in place. A significant decline in commodity prices from current levels could negatively affect Occidental’s financial performance.

Occidental’s Earnings Estimates are Going Down

The Zacks Consensus Estimate for Occidental’s 2025 and 2026 earnings per share has moved down 30.06% and 29.06%, respectively, in the past 60 days.

Occidental’s ROE Lower Than the Industry

Return on equity, a profitability measure, reflects how effectively a company utilizes its shareholders’ funds to generate income. The trailing 12-month ROE of OXY is 16.89%, a tad lower than its industry’s 16.6%.

Like Occidental, ConocoPhillips’ ROE is also marginally lower than its industry and OXY at 16.54%.

Wrapping Up

Occidental’s efforts to reduce debt, along with the strength of its domestic and international operations and the positive impact of recent acquisitions, are expected to support its performance.

Yet, the company faces challenges from volatile commodity prices and returns that currently lag behind industry averages. Declining earnings estimates are also a concern.

Despite the headwinds, it is advisable to keep this Zacks Rank #3 (Hold) stock in your portfolio, given its strong domestic operations and exposure to the prolific Permian Basin.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
 

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This article originally published on Zacks Investment Research (zacks.com).

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