BofA Securities has resumed coverage on shares of Occidental Petroleum (NYSE: NYSE:OXY), issuing a Neutral rating and setting a price target of $57.00.
The move reflects the firm's view on the company's financial prospects following a significant acquisition.
The coverage by BofA Securities notes that Occidental Petroleum has the potential for substantial future payouts, which could range between $6 to $7 per share later in the decade, bolstered by owning some of the best wells in the Permian Basin.
However, the company's recent major acquisition indicates that debt paydown could extend over several years before Occidental can match the 7-10% free cash flow equity (FCFe) payouts seen by other shale companies.
The analyst also expressed skepticism regarding the future contribution of Direct Air Capture technology to Occidental's business. Despite the availability of 45Q tax credits and the potential for carbon pricing at $500 per ton, the current economic viability of the technology is low. This uncertainty adds to the risks associated with the fluctuating oil prices that could impact Occidental's performance.
In other recent news, Occidental Petroleum has demonstrated robust financial performance with notable developments in earnings and revenue. The company achieved nearly 85% of its $4.5 billion debt reduction target in Q3 2024, reducing its principal debt by $3 billion.
This was facilitated by strong cash flow and strategic divestitures, such as the public offering of common units in Western Midstream Partners (NYSE:WES). Occidental's acquisition of CrownRock also marked a significant milestone, increasing its presence in the Permian Basin and shifting its focus towards debt reduction.
Goldman Sachs and Mizuho have both maintained a Neutral rating on Occidental Petroleum in light of these developments. Meanwhile, escalating tensions in the Middle East and the impending Hurricane Francine have prompted oil and gas producers, including Occidental, to halt operations in the Gulf of Mexico.
InvestingPro Insights
Recent data from InvestingPro adds depth to BofA Securities' analysis of Occidental Petroleum (NYSE:OXY). The company's P/E ratio of 11.74 suggests that the stock may be undervalued relative to its earnings, aligning with BofA's potential for future payouts. This is further supported by an InvestingPro Tip indicating that OXY is trading near its 52-week low, which could present an opportunity for investors considering BofA's $57 price target.
Despite the analyst's concerns about debt paydown, OXY has maintained dividend payments for 51 consecutive years, as noted by another InvestingPro Tip. This consistency in shareholder returns, coupled with a current dividend yield of 1.72%, may provide some reassurance to investors during the extended debt reduction period mentioned in the BofA report.
The company's profitability over the last twelve months, highlighted by InvestingPro, reinforces BofA's view on OXY's potential for substantial future payouts. However, investors should note that 10 analysts have revised their earnings downwards for the upcoming period, which may reflect the uncertainties surrounding oil prices and the Direct Air Capture technology mentioned in the article.
For those seeking a more comprehensive analysis, InvestingPro offers 15 additional tips for Occidental Petroleum, providing a broader perspective on the company's financial health and market position.
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