Occidental Petroleum (OXY) Earnings Forecast

Occidental Petroleum Corporation (OXY), a company that engages in the exploration and production of oil and natural gas, is scheduled to release its third quarter 2023 financial results after the market close on November 7, 2023, and will hold a conference call to discuss results on November 8, 2023.

Wall Street analysts expect OXY’s third-quarter revenue and EPS to decrease 26.8% and 64.6% year-over-year to $6.96 billion and $0.86, respectively.

Such disappointing financial results would follow the second-quarter performance, where the company mixed earnings and revenue estimates. OXY reported revenue of $6.73 billion, slightly lower than the consensus estimate of $6.74 billion. This is compared to $10.68 billion in the same quarter of 2022.

OXY’s adjusted EPS came in at $0.68, missing the analysts’ expectations of $0.76 and down 78.5% year-over-year. Further, the company failed to surpass the consensus EPS estimates in all four trailing quarters.

On August 15, OXY announced an agreement to acquire carbon air capture firm Carbon Engineering Ltd for $1.10 billion. This acquisition offers Occidental, through its 1PointFive subsidiary, the opportunity to advance direct air capture (DAC) technology breakthroughs.

The oil and gas producer plans to build around 100 plants using DAC technology that strips CO2 from the atmosphere to bury underground or make products like concrete and aviation fuel. The DAC technology is in the early stages of commercialization and will require multi-billion-dollar investments to prove it can work economically and make profits.

“This is not a huge deal for Occidental, but we think it adds to near-term leverage and heightens concerns over cash burn at (Occidental’s) Low Carbon Ventures division,” said Roth MKM brokerage firm.

The payment will be spread over three nearly equivalent annual payments, with the first due at closing expected before the end of this year.

As of June 30, 2023, OXY’s cash and cash equivalents stood at $486 million, compared to $1.17 billion as of March 31, 2023.

Shares of OXY have slumped 18.7% over the past year to close the last trading session at $61.75.

Here’s what could influence OXY’s performance in the upcoming months:

Deteriorating Financials  

OXY’s revenues declined 37.3% year-over-year to $6.73 billion for the second quarter ended June 30, 2023. The company’s income from continuing operations before income taxes was $1.33 billion, down 73.4% from the previous year’s quarter. Its net income decreased 77.1% year-over-year to $860 million.

Furthermore, the company’s non-GAAP earnings per share came in at $0.68, compared to $3.16 in the prior year’s period. Its non-GAAP free cash flow was $1.01 billion, down 75.9% year-over-year.

Mixed Analyst Estimates

Analysts expect OXY’s revenue to decrease 23.2% year-over-year to $28.48 billion for the fiscal year ending December 2023. The consensus earnings per share estimate of $3.93 for the ongoing year indicates a 57.9% year-over-year decline.

However, the company’s revenue and EPS for fiscal year 2024 are expected to grow 3.4% and 32.2% year-over-year to $29.44 billion and $5.20, respectively.

Elevated Valuation

In terms of forward non-GAAP P/E, OXY is currently trading at 16.02x, 54.7% higher than the industry average of 10.36x. The stock’s forward EV/Sales of 2.98x is 38.6% higher than the industry average of 2.15x. Likewise, OXY’s forward Price/Sales multiple of 1.96 is 26.8% higher than the industry average of 1.54.

In addition, the stock’s forward EV/EBIT and Price/Book of 12.24x and 2.65x are higher than the industry averages of 9.73x and 1.71x, respectively.

POWR Ratings Reflect Uncertainty

OXY’s bleak fundamentals are reflected in its POWR Ratings. The stock has an overall D rating, equating to Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. The stock has an F grade for Growth, consistent with its disappointing financial performance in the last reported quarter.

In addition, OXY has a D grade for Stability, justified by its 60-month beta of 1.73.

Within the Energy - Oil & Gas industry, OXY is ranked #76 out of 85 stocks.

Beyond what I have stated above, we have also given OXY grades for Quality, Value, Sentiment, and Momentum. Get all OXY’s POWR Ratings here.

Bottom Line  

Oil and gas company OXY failed to surpass second-quarter earnings and revenue analysts’ expectations. Further, the company’s near-term outlook appears bleak. Also, investors are growing concerned about its cash burn. Given OXY’s weak financials, stretched valuation, and bleak near-term prospects, it could be wise to avoid this energy stock now.

Stocks to Consider Instead of Occidental Petroleum Corporation (OXY)

Given its uncertain short-term prospects, the odds of OXY outperforming in the weeks and months ahead are compromised. However, there are many industry peers with much more impressive POWR Ratings. So, consider these three B-rated (Buy) stocks from the Energy - Oil & Gas industry instead:

Valero Energy Corp. (VLO)

Baker Hughes Co. (BKR)

CVR Energy Inc. (CVI)

To explore more A and B-rated energy stocks, click here.

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook >

OXY shares fell $0.82 (-1.33%) in premarket trading Tuesday. Year-to-date, OXY has declined -1.98%, versus a 15.10% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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