Occidental Petroleum’s (NYSE: OXY) stock price correction hit bottom in April, and the rebound gained momentum in May after a solid earnings beat. Headwinds exist for this and other energy companies, but their leaning into increased production and operational quality is paying off. The Q1 results highlight this company’s efficiency efforts and indicate that gains will be sticky and cash flow will remain robust. 

Cash flow is critical to this investment thesis because it is improving, allowing for substantial debt reductions and rapidly improving shareholder value. Debt reduction in Q1 topped $2.3 billion and left the cash balance and equity up compared to the prior year. Because cash flow is robust and debt is falling, investors can expect this company’s shareholder value to continue improving, and the capital return to increase over time.

The company isn’t buying back stock in 2025 to focus on debt reduction, but will resume in time. Until then, the 2025 dividend payout annualizes to roughly 2.5% with shares in the low $40s, reliable at less than 25% of earnings, and expected to be increased annually. 

Occidental Offsets Lower Realized Prices With Increased Volume 

Occidental had a solid Q1 despite the mid-single-digit decline in average oil price reported for the quarter. The decline was offset by a 24% increase in U.S. volume, up 18.7% globally, that drove a 13.7% increase in revenue. The revenue fell short of the consensus estimate by 570 bps, but the critical details are the growth and the margin.

The company widened its operations margins on a combination of internal efficiencies unlocked during the quarter, driving significant outperformance on the bottom line despite the top-line weakness. Adjusted EPS grew by 22% to $0.87 to outpace MarketBeat’s reported consensus by $0.11 and generally improve the outlook. 

The company didn’t provide much specific guidance but did indicate an expectation for additional cost reduction. Execs reduced the midpoints of their capital guidance and domestic operating cost expectations for an aggregate savings of $350 million in addition to what has already been forecasted.

The takeaway is that revenue may not be fantastic, but earnings quality will continue to improve. Occidental can continue its turnaround efforts and debt reduction, leaving it on track to reach long-term financial goals.

What Will Warren Buffett Do With OXY Stock in 2025?

The odds are high that Berkshire Hathaway will continue to hold OXY stock in 2025 and may even increase the stake. The improving cash flow, balance sheet, and capital return are fundamental to the company's investment style and promise to provide cash flow and value over time.

The real question is what institutions other than Berkshire and the analyst will do, and that is a trickier nut to crack. Institutional holdings, including Berkshire Hathaway, are robust at nearly 90%, but the net activity was bearish in early Q2 before the release. If that trend persists, the stock price rebound will end quickly. 

Analyst trends are conflicting with the coverage increasing and the consensus Hold rating firming to nearly a Buy, offset by price target reductions. However, the stock price corrected to the low end of the range and rebounded with a 35% upside forecast at the consensus. If the analysts reaffirm or lift targets late in Q2, the rebound could gain momentum, more so if the institutions revert to buying and reach the consensus $54 target by early summer. 

The price action following the release is bullish. The market rose more than 5% to show support in alignment with the April bottom. The risk is that resistance at the 30-day EMA will cap gains and keep the market moving sideways, if not lower.

The upshot is that significantly lower prices are not expected, and the potential for a positive catalyst emerging, including Berkshire buying stock or analysts’ price target increases, is high. 

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