Occidental Petroleum Corporation (NYSE:OXY) is an oil & gas production company, which operates in three segments: Oil & Gas, Chemical, and Midstream, Marketing and Other. On July 30, 2013, the company reported second-quarter earnings of $1.58 per share, which missed the consensus of analysts' estimates by $0.05. Since last writing about the stock back on September 11, 2013, the stock is up 8.24%, and is beating the S&P 500, which has gained 3.6% in the same time frame. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial, and technical basis to see if it's worth buying some more of the company right now for the basic materials sector of my dividend portfolio.
The company currently trades at a trailing 12-month P/E ratio of 17.71, which is fairly priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 13.02 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $7.46 per share and I'd consider the stock inexpensive until about $112. The 1-year PEG ratio (3.64), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is expensively priced based on a 1-year EPS growth rate of 4.87%.
On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 2.64% with a payout ratio of 47% of trailing 12-month earnings while sporting return on assets, equity and investment values of 6.7%, 10.7% and 9%, respectively, which are all respectable values. Because I believe the market may get a bit choppy here and would like a safety play, I believe the 2.64% yield of this company is good enough for me to take shelter in for the time being. The company has been increasing its dividends for the past 11 years at a 5-year dividend growth rate of 17.2%.
Looking first at the relative strength index chart [RSI] at the top, I see the stock muddling around in overbought territory with a value of 67.03 with trajectory that is flattening out. To confirm that, I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is about to cross below the red line with the divergence bars decreasing in height, indicating a bearish pattern. As for the stock price itself ($97.82), I'm looking at $99.12 to act as resistance and $96.33 to act as support for a risk/reward ratio, which plays out to be -1.52% to 1.33%.
- JPMorgan sees solid third quarter earnings from the integrated oil companies with Occidental as one of its top picks.
- The company plans to sell a minority stake in its Middle East and North Africa operations in order to make itself smaller.
- Barron's listed Occidental as one of its six standout stocks for a tough earnings environment citing a raise on the company's EPS estimates, and recently raised price targets or recommendation upgrades.
With all the restructuring slated to take place at the company I believe there is value to be unlocked. The company is inexpensively valued on future earnings but expensive on future growth estimates and can come in a bit more. I currently see bearish technicals and for this reason I'm going to hold off on getting into the stock right now and evaluate again shortly.
Disclaimer: These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!
Disclosure: I am long OXY. 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.