Analysts Parse Occidental Petroleum's 'Messy' Quarter, Positive Guidance

Although Occidental Petroleum Corporation (NYSE: OXY) reported fourth-quarter headline earnings per share of $1.22, ahead of the consensus projection of $1.15, the beat came on the back of a lower tax charge related to net operating losses in 2018.

The company projected its capex at $4.5 billion for 2019, $500 million lower than 2018 levels, and guided to 5-8-percent topline growth for the year at $50/bbl.

The Analysts

UBS analyst Lloyd Byrne maintains a Neutral rating on Occidental Petroleum with a $71 price target.

Bank of America Merrill Lynch’s Doug Leggate reiterated a Buy rating with an unchanged $85 price target. 

The Thesis

Occidental's cash flow per share and earnings before interest, taxes, depreciation, amortization and exploration came in at $2.48 and $2.229 billion, respectively, missing the consensus expectations of $2.72 and $2.395 billion.

The CFPS miss resulted from higher costs, a weaker midstream and softer chemicals, UBS’ Byrne said in a Tuesday note, adding that there could be “a cautious reaction” to the Q4 print. 

Occidental's Q1 production guidance of 706-713mboepd slightly missed the consensus, but this is due to the timing of wells, with a group expected to come into account in early Q2, the analyst said.

The company’s FY19 guidance is positive, with a 7-percent decline in capex leading to only a 1-percent contraction in production, according to UBS. 

Although BofA's Leggate called the quarter “messy,” he said Occidental delivered solid underlying performance, with global oil and gas production at the midpoint of guidance.

The company’s cashflow of $1.9 billion covered capex and dividends, making 2018 the best cashflow year since 2014, the analyst said. 

Occidental is among the most oil-leveraged large-cap E&Ps, Leggate said. If oil prices rise above strip prices in 2019, management could announce more share buybacks, he said.

Given the cash flow target of $9 billion in 2022, the company “would secure the headroom to drive competitive dividend growth versus the broader market,” the analyst said. 

Price Action

Occidental shares were up 0.18 percent at $65.85 at the close Wednesday. 

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