Occidental Petroleum: Poised To Move Higher In 2013

Jul.22.13 | About: Occidental Petroleum (OXY)

Occidental Petroleum (NYSE:OXY) is a company that engages in the production of oil and gas in the United States and internationally. The company doesn't own refinery assets. The stock has performed well so far this year, with shares climbing 17.82%. In addition, the company boasts a strong dividend yield and positive recent developments will help move the stock's price to higher levels this year. The 1-year target estimate is $104, which represents a 13% gain from Friday's closing price of $92.09.

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source: chart from Yahoo! Finance

Recent Developments

Numerous key developments have taken place recently. One of these developments is a possible breakup into two or three pieces. Based on comments from CEO Steve Chazen, this scenario seems to be plausible. It is believed that the company will announce its plans for a possible breakup in July. A spin-off could be a huge win for shareholders, but it still isn't clear what management will ultimately do. In July, the company partnered with Qatar Petroleum to spend more than $3 billion to upgrade the Idd El Shargi North Dome oil field in Qatar. Also, in May the longtime president and chairman of Occidental was ousted from the company.

Q1 2013 Results

For the first quarter of 2013, the company beat the estimates. The company reported earnings of $1.69, which was 12 cents higher than the consensus estimate. The company revenues beat the consensus estimate by $80 million dollars. The first-quarter earnings reflected higher oil prices and reduced operating expenses. Occidental reported that its volumes were lower in the Middle East and North Africa, but this was due to planned maintenance. Operating costs were higher in this region and daily oil production was lowered due to the planned maintenance. However, in the U.S. production was increased by 3,000 barrels compared to the fourth quarter. The realized price of worldwide crude oil increased by 2% from the fourth quarter of 2012. However, the price of NGLs declined by about 11%.

Fundamentals

The stock has a TTM P/E ratio of 16.97, which is substantially lower than the industry average P/E ratio 46.3. In addition, the forward P/E of 12.38 is much lower than the TTM P/E ratio. The company's Price-to-Book ratio of 1.8 is also below the industry average P/E ratio of 1.9. The stock's ROE of 11% is much higher than the industry average of 4%. Occidental's profit margin of 18% is much more than industry average of 5.78%. The Debt to Equity of 18.62 is also well below the industry average 45.8. One of the more attractive aspects of this stock is its dividend yield, which is currently at 2.8%. The company has continually paid a dividend since 1975.

Conclusion

Now may be the optimal time to buy shares of Occidental Petroleum. The dividend yield for this stock is attractive at 2.8% and CEO Steve Chazen has indicated that he wants to split the company up. The company is set to report earnings on July 30, and it is likely that we will get a more clear picture of the company's plans during the earnings conference call. If the company does announce a breakup this month then shares will likely move to higher levels. However, if Steve Chazen announces that the company won't split up then the stock could decline in the near term. Although it's possible that a break up won't happen, I believe that the reward outweighs the risk.

source: data from Yahoo! Finance

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in OXY over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.