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

There’s a threat that OXY shares might fall by way of help at $58, however it’s unlikely for 2 causes. The primary is that analysts proceed to help the market regardless of decreasing their worth targets. The consensus is down in comparison with final yr however continues to be 22% above the value motion, and there’s a ground in sentiment in step with the value motion. The analyst’s lowest goal is $59, suggesting this inventory is in deep worth territory.  The latest revision, issued after the This fall outcomes, is from Stephens, reiterating an Obese score and a $74 worth goal. 

The second cause 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. Eventually depend, 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 stream is strong, and administration is leaning into strengthening the steadiness sheet and realigning it in favor of widespread 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. Nonetheless, the 9.6% decline is 960 bps forward of the Marketbeat.com consensus as a result of the typical realized worth 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 energy anticipated this yr. The corporate guides for flat manufacturing however could simply surpass it because it has completed 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 stream, 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 progress with earnings up 45%. 

Money stream and capital returns are a precedence for Occidental Petroleum 

Occidental focuses a lot of its money on lowering debt to liberate money stream for extra shareholder returns. Efforts in 2023 included lowering the popular share depend, shopping for again widespread inventory, lowering debt and constructing fairness. Outcomes embrace a 20% dividend distribution improve for 2024, a 2.3% improve 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 stream is freed.   

The technical outlook is favorable for this vitality inventory. The inventory isn’t rocketing larger on the outcomes, however help is stable, and worth motion is advancing. The two.5% acquire constitutes a trend-following sign on the weekly chart, however there are hurdles to cross. The inventory continues 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 help, the chances of retesting the current highs and transferring to new ones are excessive.

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