Occidental Petroleum Pulls Back To The Sweet Spot

Key Points

• Occidental Petroleum moves up on mixed results. 
• Earnings strength was priced in but dividend growth, buybacks and repurchases were not. 
• Warren Buffet may begin buying shares again, now that results are in. 

There are many stories regarding the Occidental Petroleum NYSE: OXY narrative for investors. One of those stories is Warren Buffet. Mr. Buffet and Berkshire Hathaway own 26% of the company and have the approval to buy up to 50% and yet haven’t made a purchase since September 2022. Why is that? It could be because the stock price increased above the $60 level. This level has been put forth as the price cap for Mr. Buffet, but things have changed.

The price of this stock fell back to the $60 level just ahead of the Q4 earnings release, and now, in the aftermath of that release, support is confirmed. It’s too soon to know if Mr. Buffet is buying this stock, but someone is, and we know he likes it. 

Occidental Petroleum’s Q4 results were underwhelming, but a mitigating factor exists. Occidental is among the last energy giants to report for Q4, so Exxon Mobil NYSE: XOM, BP NYSE: BP, Chevron NYSE: CVX, and the rest foreshadowed the strength. In this light, the earnings miss is a non-event, and there are more important matters to be concerned with. The primary is the capital return program. Another of the many stories driving this narrative is the dividend.

The dividend was cut to preserve capital during the pandemic and has yet to be reinstated to its previous glory. The company did increase the payment by 38% this quarter, raising it to $0.72 annually, which still leaves a sizeable increase to come, assuming OXY will follow its peers and start paying the pre pandemic payout. 

Occidental Petroleum Moves Higher On Mixed Results 

Occidental Petroleum had a stellar quarter despite falling short of the Marketbeat.com consensus on the top and bottom lines. The company reported $8.22 billion in revenue, a gain that doubled last year’s take. The company also set records in all segments and was able to generate ample amounts of FCF.

The lackluster dividend increase is offset by a $10.5 billion reduction in debt and a new $3 billion share repurchase program on top of the $3 billion spent on repurchases in 2023. $3 billion is worth almost 6% of the market cap and is certainly one reason Mr. Buffet likes this company. 

"Our fourth quarter of 2022 performance capped a year of strong results, in which we set operational records across our U.S. Onshore, Gulf of Mexico and International oil and gas businesses,” said President and Chief Executive Officer Vicki Hollub. "Our operational success drove the financial achievements that enabled us to complete our $3.0 billion share repurchase program and deliver substantial balance sheet improvements. Our teams are well positioned to maintain this operational success, as we continue to focus on delivering value for our shareholders in 2023 through our recently authorized $3.0 billion share repurchase program and a 38% increase to our sustainable dividend."

Analysts Support OXY Price Despite Softening Sentiment 

The analyst's support for OXY began to fad ahead of the Q4 release and has helped to get the price back to the $60 level. Despite this, they have it pegged at a firm Hold verging on Moderate Buy with a price target over 25% above the current action. The analysts don’t have to get bullish to help this stock move higher; only firm the sentiment and reduce downward pressure. 

The charts are promising. The market is confirming support at the $60 level, consistent with a floor put in place in 2019. Assuming this level holds, OXY shares should continue to move sideways within the range of $60 to $75 with a possibility of breaking out later in the year.