Occidental Petroleum Corp (OXY, Financial) has recently seen a daily gain of 2.83%, and a 3-month gain of 13.98%. With an Earnings Per Share (EPS) (EPS) of 5.89, it raises the question: is the stock modestly overvalued? This article aims to provide a comprehensive analysis of Occidental Petroleum's valuation and future prospects. We invite you to delve into the following analysis for a clearer understanding of Occidental Petroleum's intrinsic value.
Company Introduction
Occidental Petroleum 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. Its net production averaged 1,159 thousand barrels of oil equivalent per day in 2022, with a ratio of 75% oil and natural gas liquids and 25% natural gas. With a current stock price of $64.94 per share and a GF Value of $49.61, Occidental Petroleum's market cap stands at $57.40 billion.
Understanding GF Value
The GF Value represents the intrinsic value of a stock, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line provides an overview of the fair trading value of the stock. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
According to the GuruFocus Value calculation, Occidental Petroleum appears to be modestly overvalued at its current price of $64.94 per share. 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
Companies with poor financial strength pose a high risk of permanent capital loss. It is crucial to review a company's financial strength, such as its cash-to-debt ratio and interest coverage, before purchasing shares. Occidental Petroleum's cash-to-debt ratio of 0.02 ranks lower than 92.07% of 1034 companies in the Oil & Gas industry. Its overall financial strength is 5 out of 10, indicating fair financial health.
Profitability and Growth
Investing in profitable companies carries less risk. Occidental Petroleum has been profitable 6 years over the past 10 years. It had revenues of $31.50 billion and an EPS of $5.89 in the past 12 months. Its operating margin of 29.55% is better than 74.39% of 984 companies in the Oil & Gas industry. Overall, GuruFocus ranks Occidental Petroleum's profitability as fair.
Growth is a crucial factor in a company's valuation. The 3-year average annual revenue growth rate of Occidental Petroleum is 12.3%, which ranks better than 54.41% of 862 companies in the Oil & Gas industry. Its 3-year average EBITDA growth rate is 33.1%, ranking better than 71.29% of 829 companies in the industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also evaluate its profitability. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. Over the past 12 months, Occidental Petroleum's ROIC was 10.98, while its WACC was 10.19.
Conclusion
In conclusion, Occidental Petroleum's stock appears to be modestly overvalued. The company's financial condition is fair, and its profitability is fair. Its growth ranks better than 71.29% of 829 companies in the Oil & Gas industry. For more information on Occidental Petroleum stock, check out its 30-Year Financials here.
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