OXY: Upcoming Petrochemical Unit Sale Will Accelerate Debt Reduction And Cash Returns

Occidental Petroleum's consensus analyst price target saw a modest decrease of approximately $0.56 per share this quarter. Analysts incorporated generally cautious outlooks on future margins, balance sheet changes following OxyChem's sale, and evolving capital allocation expectations.

Analyst Commentary

Recent analyst opinions on Occidental Petroleum reflect a mix of cautious optimism and concerns around valuation, growth prospects, and execution following the company's divestment of its chemical business. The following subsections summarize key bullish and bearish takeaways from recent Street research.

• Bullish analysts have modestly increased price targets for Occidental, with some raising their outlook in response to updates in the company’s portfolio and sector performance.
• The divestiture of OxyChem and the subsequent debt reduction are seen as steps toward strengthening the company’s balance sheet and enabling future increases in cash returns to shareholders.
• Enhanced capital allocation and accelerated progress toward debt targets are highlighted as positives, improving overall financial flexibility.
• Some analysts see potential upside in the company’s exposure to the evolving power and data center demand story, as well as in selective exploration and international opportunities.

• Bearish analysts are cautious about the impact of the OxyChem sale. While debt is reduced, the transaction is dilutive to certain financial metrics and valuation.
• Concerns remain around the lingering $8.3 billion in preferred equity, which limits the pace of shareholder returns and reduces comparability to large-cap peers.
• Analysts flag that the sale price fell short of prior media expectations, with some value offsets from ongoing or increased environmental liabilities.
• Despite some favorable revisions, updated forecasts in key business segments are still considered disappointing relative to what margin indicators formerly implied.

What's in the News

• Berkshire Hathaway is reportedly nearing a $10 billion deal to acquire Occidental Petroleum's petrochemical business, according to the Wall Street Journal. (WSJ)
• An agreement between Occidental and Berkshire Hathaway for the OxyChem unit could be finalized within days, according to sources familiar with the matter. (WSJ)
• The Financial Times reports Occidental is in talks to sell OxyChem for around $10 billion. This would mark Occidental's largest divestment to date. (FT)

Valuation Changes

• Fair Value: The estimated fair value per share declined modestly from $50.48 to $49.91.
• Discount Rate: The discount rate decreased slightly, shifting from 7.56% to 7.25%.
• Revenue Growth: Projected revenue growth saw a notable increase, rising from 0.10% to 1.63%.
• Net Profit Margin: The expected net profit margin fell significantly, moving from 11.53% to 7.76%.
• Future P/E: The projected future price-to-earnings ratio rose considerably, from 22.7x to 31.6x.