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Large energy concerns like Hess Corporation (HES) and ConocoPhillips (PSX) have done a very solid job over the last 12-18 months by becoming more shareholder friendly - often at the behest of activist funds. They have shed non-strategic assets & operations, increased dividends and ramped up stock repurchase plans. As a result, shareholder value has increased significantly. I postulated that Occidental Petroleum (OXY) back in early March could benefit by similar moves. The shares have moved up $10 a share since that article as the company has made some significant moves as well as uttered several positive comments that point to the start of a more shareholder friendly company over the coming 3-12 months. I believe these cheap energy shares have further upside as these moves get implemented.

Recent positive moves/comments from Occidental Petroleum:

  • Longtime president and chairman Ray Irani was recently booted off the company's board, giving more power to the current CEO to charge ahead with positive changes for shareholders.
  • CEO Steve Chazen recently talked about selling its overseas assets or splitting into three separate companies to fund a stock buyback and improve its share price. Putting midstream assets into an MLP also is an option.
  • Raymond James came out earlier in the month saying Occidental was now better positioned to deliver share gains than Hess Corporation on these potential moves to unlock additional value in the company.
  • Deutsche Bank upgraded the shares to "Buy" from "Hold" and raised its price target on OXY to $112 a share from $90 on the ouster of Ray Irani.

4 additional reasons OXY has value at $90 a share:

  1. OXY pays a dividend of 2.8% currently. Dividend payouts have increased at more than a 15% CAGR over the past five years. I would look for the company to increase dividends in addition to upping stock repurchases as it sells assets. Citi recently added the shares to its top dividend stock list.
  2. The stock sells in the bottom third of its five year valuation range based on P/B, P/S and P/CF.
  3. The company has an A rated balance sheet and it also consistently beats earnings estimates. OXY has beat consensus earnings estimates each of the last four quarters. The average beat over consensus during that time frame has averaged ~7%.
  4. The 21 analysts that cover the stock have a median price target of $103 on OXY. The stock is "Buy" rated at S&P. Credit Suisse has an "Outperform" rating as well as a $110 price target on OXY.
Source: Occidental Petroleum: Transformation Appears Set To Begin