Occidental Petroleum Hits New Low: Will Buffett Take the Bait?

Key Points

• Warren Buffet is on track to own 50% of OXY stock but hasn't bought any in months. With shares at a new low, he may do it soon. 
• Despite headwinds, Occidental Petroleum had a solid quarter, producing ample cash flow and reducing debt. 
• Analysts' conviction is firming for a consensus move of 30% from critical support levels. 

Anyone watching the Occidental Petroleum NYSE: OXY market will know that Warren Buffett has driven the price action. Fundamental qualities aside, Berkshire Hathaway's NYSE: BRK.A stock purchases began in early 2022, coinciding with an updraft in share prices, and have supported the stock numerous times since. With the stock falling below the trigger point, the question is if he’ll take the bait and buy more.

The Berkshire stake is already approaching 30% but could quickly grow to over 40% if more stock is bought, including warrants. Berkshire hasn’t purchased any OXY shares tracked by MarketBeat since June 2024, but the next may come any day. 

Occidental Petroleum Had a Good Quarter: Reduces Debt

Occidental Petroleum had headwinds in Q3, but its operational performance offset them. The company reported $7.154 billion in net revenue, a decline of 3.3% compared to last year. However, ramping production in key energy-producing regions and strength in the mid and downstream segments led to sequential growth and outperformance.

Revenue outpaced the consensus by nearly 50 basis points, a slim margin. Still, it revealed the company’s resilience and improved operational quality, which resulted from CEO Vicki Hollub and the team’s efforts.

Margin and cash flow are central to the investment thesis. The company experienced margin contraction due to deleveraging oil and natural gas prices but offset the decline with efficiency improvements. The net result is operating and free cash flow margins of 53% and 21%, respectively, allowing for sustained capital return and debt reductions. 

Among the report's highlights is a $4 billion debt reduction, which puts the company on track to meet and exceed its near-term debt reduction target in FQ4.

The company is targeting $15 billion in gross debt or less than 0.5X equity relative to the end of Q3. Regarding equity, the company’s positive cash flow quarter and debt reduction efforts allowed for a cash build and a 20% increase in shareholder value. 

Occidental: Dividends Growth is in the Forecast

Occidental’s dividend is safe and expected to grow but is offset by dilution in 2024. The company isn’t selling tons of shares but has increased the float by 1.7% over the last few quarters. In contrast, the dividend is worth about 1.75%, trading near $49.50. However, the long-term outlook is for share sales to cease as the balance sheet improves and for the dividend to increase. Occidental’s balance sheet isn’t in bad shape but is burdened by debt following acquisitions. As it is, Occidental is running with net long-term leverage below 1X equity and pays less than 30% of its current-year earnings outlook. It has been increased 3 times since 2022 and is due for another this quarter. 

The analysts' response to the news is mixed. MarketBeat.com tracks several revisions, including increased and decreased price targets. The takeaway is that 20 analysts show a high conviction in the Hold rating, and the bias is bullish. 95% rate that stock as Hold or better, 35% as Buy, and the consensus price target assumes a 30% upside for the market. 

Occidental Stock Price Falls to Critical Support

Occidental’s stock price is falling and may move lower. However, it is close to a critical support target that will likely bring in new money from the market, if not more money from Berkshire Hathaway. The level is near $48.25, coinciding with support and resistance targets dating to early 2020 and the mid-point of a large green candle sparked by Buffet’s initial buying spree. A move below it would signal a significant shift in market dynamics and raise the risk of a deeper decline. The more likely scenario is that the market and possibly Berkshire Hathaway will support the market.