The Occidental Petroleum NYSE: OXY funding thesis has been getting extra bullish over the past two years, setting the top off for a considerable rally. This autumn outcomes apart, the market seems able to rally now and will transfer greater quickly. The technical setup is stable, with the worth motion at all-time low, stochastic firing a powerful sign and MACD able to observe. Assuming the market follows via on this sign, it may advance 15% to 30% with an opportunity of setting new highs earlier than mid-year.

There’s a danger that OXY shares may fall via assist at $58, however it’s unlikely for 2 causes. The primary is that analysts proceed to assist the market regardless of reducing their value targets. The consensus is down in comparison with final yr however remains to be 22% above the worth motion, and there’s a ground in sentiment in keeping with the worth motion. The analyst’s lowest goal is $59, suggesting this inventory is in deep worth territory.  The latest revision, issued after the This autumn outcomes, is from Stephens, reiterating an Chubby ranking and a $74 value goal. 

The second motive OXY is unlikely to fall under considerably under $58 is Warren Buffett. Mr. Buffett and Berkshire Hathaway have been shopping for this inventory when it reaches present ranges; the newest was in December final yr, and extra purchases are anticipated. Ultimately rely, Berkshire owned 25% of the diluted firm with authorization to purchase as much as 50%. Berkshire is shopping for OXY as a result of the money circulation is powerful, and administration is leaning into strengthening the steadiness sheet and realigning it in favor of frequent stockholders. 

Occidental Petroleum has a better-than-expected quarter

Occidental Petroleum posted a contraction in income and earnings in comparison with final yr because of the deleveraging of oil costs. Nevertheless, the 9.6% decline is 960 bps forward of the Marketbeat.com consensus as a result of the common realized value didn’t fall as quick as analysts forecasted, and manufacturing is ramping. The corporate outpaced its manufacturing goal midpoint by 0.6%, serving to to maintain higher-than-expected income ranges, with some power anticipated this yr. The corporate guides for flat manufacturing however might simply surpass it because it has executed for the final a number of quarters. OxyChem and Midstream additionally carried out above expectations. 

Margin additionally deleveraged on oil costs however surpassed expectations aided by quantity. EBITDA and internet earnings margins contracted by a number of hundred foundation factors however have been lower than anticipated, leaving money, money circulation, and earnings above the consensus. The adjusted $0.74 diluted earnings beat by a nickel, with substantial margin enchancment anticipated for subsequent yr. The corporate doesn’t give particular steering; analysts forecast 7% top-line development with earnings up 45%. 

Money circulation and capital returns are a precedence for Occidental Petroleum 

Occidental focuses a lot of its money on decreasing debt to liberate money circulation for added shareholder returns. Efforts in 2023 included decreasing the popular share rely, shopping for again frequent inventory, decreasing debt and constructing fairness. Outcomes embrace a 20% dividend distribution enhance for 2024, a 2.3% enhance in shareholder fairness, and plans to scale back debt and most well-liked shares additional because the yr progresses. The long-term plan contains shifting its capital return focus to rising the tempo of repurchases as money circulation is freed.   

The technical outlook is favorable for this vitality inventory. The inventory isn’t rocketing greater on the outcomes, however assist is stable, and value motion is advancing. The two.5% achieve constitutes a trend-following sign on the weekly chart, however there are hurdles to cross. The inventory remains to be under potential resistance on the 30-day transferring common, which can preserve it down or transfer sideways inside its vary. If the market can get above it and maintain assist, the chances of retesting the current highs and transferring to new ones are excessive.

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