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Occidental (OXY) Down 9.3% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

A month has gone by since the last earnings report for Occidental Petroleum (OXY). Shares have lost about 9.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Occidental due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Occidental Q3 Earnings Miss Estimates, Sales Beat

Occidental Petroleum Corporation reported third-quarter 2019 earnings of 11 cents per share, lagging the Zacks Consensus Estimate of 41 cents by 73.2%. The bottom line was also significantly lower than $1.77 per share recorded in the prior-year quarter.

Total Revenues

Occidental's total revenues were $5,871 million, beating the Zacks Consensus Estimate of $5,690 million by 3.2%. However, the top line declined 4.9% from $6,176 million in the year-ago quarter.

Production & Sales

Occidental’s average daily net oil, liquids and gas production volume expanded to 1,155,000 barrels of oil equivalent per day (boe/d), which included the acquired Anadarko assets. The metric was 681,000 boe/d in the prior-year quarter.

This improvement in production volume was backed by higher drilling activity and solid output from the Permian Resources region. Permian Resources production improved 33% year over year.

In the quarter under review, total sales volume was 1,157,000 boe/d compared with 696,000 boe/d recorded in the year-ago period.

Realized Prices

Realized prices for crude oil in the third quarter dropped 10.2% year over year to $56.26 per barrel on a worldwide basis. Worldwide realized NGL prices also decreased 49.4% from the prior-year quarter to $14.96 per barrel. Moreover, worldwide natural gas prices were down 14.8% from the year-ago quarter to $1.38 per thousand cubic feet.

The overall decline in realized prices of the commodities did not allow the company to realize full benefits of higher production and sales volumes in the reported quarter.

Highlights of the Release

Its acquisition deal with Anadarko Petroleum has progressed per expectation. This boosted total production in the third quarter and strengthened Occidental’s presence in the resource-rich Permian Basin.

Selling, general and administrative, as well as other operating expenses in the third quarter were $242 million, up 60.3% from $151 million a year ago.

Interest expenses in the reported quarter were $381 million compared with $96 million in the year-ago period.

Occidental’s management, which continues to increase the value of its shareholders, returned $1,766 million in the first nine months of 2019 through dividend payments.

Financial Position

As of Sep 30, 2019, Occidental had cash and cash equivalents of 4,840 million compared with $3,033 million on Dec 31, 2018.

As of Sep 30, 2019, the company had a long-term debt (net of current portion) of $39,946 million compared with $10,201 million on Dec 31, 2018. The increase in the debt level was due to the loan taken by the company to fund the acquisition of Anadarko.

In third-quarter 2019, cash from operations was $2,478 million, up from $2,404 million in the prior-year period.

In third-quarter 2019, Occidental’s total capital expenditure was $1,714 million, up from $1,319 million invested in the year-ago period.

Guidance

Occidental expects fourth-quarter 2019 production in the range of 1,312,000-1,336,000 boe/d. Production from Permian Resources is expected in the range of 449,000-459,000 boe/d.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -30.4% due to these changes.

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VGM Scores

Currently, Occidental has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Occidental has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.


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