Buffett has ‘clear path’ to acquiring Occidental, Truist says

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Warren Buffett’s Berkshire Hathaway (NYSE:BRK.B) (NYSE:BRK.A) has a “clear path” to acquiring Occidental Petroleum (NYSE:OXY) after adding more shares to its holdings, analysts at Truist said on Thursday.

The billionaire’s company yesterday revealed in a regulatory filing that it had bought an additional 6 million shares of common stock in Occidental. The acquisition raises Berkshire’s ownership to about 21%, not including any warrants or conversions of preferred shares.

“We continue to believe an outright total purchase of OXY in the near-term could make logical sense for Berkshire Hathaway,” Neal Dingmann, analyst at Truist, said in a research note.

Declining debt, a strong forecast for free cash flow, the possibility of reaching investment-grade status and progress for Low Carbon Ventures, the Occidental subsidiary focused on reducing emissions, are key reasons for Berkshire to buy the company outright, according to Truist.

Instead of measuring Berkshire’s ownership based on a share count of 925 million, it’s more accurate to use 1.3 billion shares in calculations, Dingmann said. The higher number assumes conversion of preferred shares at 110% using common equity.

It also means Berkshire owns about 15% of Occidential through common stock, about 6% though warrants and roughly 14% through preferred shares.

"Worth noting, under this method the total percentage ownership has not significantly changed from about 35% since the last update in early August," according to Truist. "The stock price has appreciated which reduces the amount of equivalent shares the $10 billion of preferreds would convert into."

Occidental's stock has nearly doubled this year with a 97% gain, contrasting with a 25% decline for the S&P 500 Stock Index (SP500).

Seeking Alpha contributor The Digital Trend rates Occidental (OXY) as a Buy, saying it's "ready to rock" for its ROE and profitability.

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