Occidental Petroleum Corp (OXY, Financial) recently experienced a daily gain of 3.31% and a 3-month gain of 14%. The company's Earnings Per Share (EPS) stands at 5.89. Despite these positive figures, questions arise about whether the stock is modestly overvalued. This article aims to answer this question through a comprehensive valuation analysis. We invite you to delve into the following analysis to gain insights into Occidental Petroleum's intrinsic value.
Introduction to Occidental Petroleum
Occidental Petroleum Corp (OXY, Financial) is an independent exploration and production company with operations in the United States, Latin America, and the Middle East. At 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 stock price of $65.84 and a GF Value of $50.71, Occidental Petroleum appears to be modestly overvalued. The GF Value is an estimation of the fair value of the stock, serving as a benchmark for investors to understand the company's intrinsic value. Below is the income breakdown of Occidental Petroleum:
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line on the summary page provides an overview of the stock's fair trading value.
According to GuruFocus Value calculation, Occidental Petroleum (OXY, Financial) is believed to be modestly overvalued. The stock's current price is $65.84 per share, with a market cap of $58.20 billion, suggesting that the stock is trading above its fair value. As a result, the long-term return of its stock is likely to be lower than its business growth.
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Financial Strength of Occidental Petroleum
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's essential to review a company's financial strength before deciding to buy shares. Looking at indicators such as the cash-to-debt ratio and interest coverage can provide a good initial perspective on the company's financial strength.
Occidental Petroleum has a cash-to-debt ratio of 0.02, which ranks worse than 92.6% of companies in the Oil & Gas industry. Based on this, GuruFocus ranks Occidental Petroleum's financial strength as 5 out of 10, suggesting a fair balance sheet. Below is the debt and cash trend of Occidental Petroleum over the past years:
Profitability and Growth of Occidental Petroleum
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 73.17% of companies in the Oil & Gas industry. Overall, the profitability of Occidental Petroleum is ranked 7 out of 10, indicating fair profitability.
Growth is probably the most important 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 54.57% of companies in the Oil & Gas industry. The 3-year average EBITDA growth rate is 33.1%, which ranks better than 71.7% of companies in the Oil & Gas industry.
ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Occidental Petroleum's return on invested capital is 10.98, and its cost of capital is 9.1.
The historical ROIC vs WACC comparison of Occidental Petroleum is shown below:
Conclusion
In conclusion, Occidental Petroleum (OXY, Financial) stock appears to be modestly overvalued. The company's financial condition and profitability are fair, and its growth ranks better than 71.7% of 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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