Oil & Gas Stocks

Occidental Petroleum Corp Valuation – June 2018 $OXY

Company Profile (excerpt from Reuters): Occidental Petroleum Corporation (Occidental), incorporated on April 9, 1986, is an oil and gas exploration and production company. The Company operates through three segments: oil and gas, chemical (OxyChem), and midstream and marketing. The oil and gas segment explores for, develops and produces oil and condensate, natural gas liquids (NGLs) and natural gas. The OxyChem segment manufactures and markets basic chemicals and vinyls. The midstream and marketing segment gathers, processes, transports, stores, purchases and markets oil, condensate, NGLs, natural gas, carbon dioxide (CO2) and power. It also trades around its assets, including transportation and storage capacity. Additionally, the midstream and marketing segment invests in entities that conduct similar activities. Occidental’s domestic upstream oil and gas operations are located in New Mexico and Texas. Its international operations are located in Bolivia, Colombia, Oman, Qatar and the United Arab Emirates (UAE).

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Downloadable PDF version of this valuation:

ModernGraham Valuation of OXY – June 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $65,167,048,809 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.26 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -85.11% Fail
6. Moderate PEmg Ratio PEmg < 20 -185.81 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.15 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.26 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 5.65 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg -$0.46
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth -$6.64
MG Value based on 0% Growth -$3.89
Market Implied Growth Rate -97.15%
Current Price $85.10
% of Intrinsic Value N/A

Occidental Petroleum Corporation does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability or growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $4.83 in 2014 to an estimated $-0.46 for 2018. This level of negative earnings does not support a positive valuation.As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Occidental Petroleum Corporation revealed the company was trading above its Graham Number of $31.59. The company pays a dividend of $3.06 per share, for a yield of 3.6%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was -185.81, which was below the industry average of 87.76, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-17.2.

Occidental Petroleum Corporation scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$17.20
Graham Number $31.59
PEmg -185.81
Current Ratio 1.26
PB Ratio 3.15
Current Dividend $3.06
Dividend Yield 3.60%
Number of Consecutive Years of Dividend Growth 15

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Total Current Assets $8,894,000,000
Total Current Liabilities $7,070,000,000
Long-Term Debt $10,309,000,000
Total Assets $42,808,000,000
Intangible Assets $0
Total Liabilities $22,086,000,000
Shares Outstanding (Diluted Average) 767,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.65
Dec2017 $1.70
Dec2016 -$0.75
Dec2015 -$10.23
Dec2014 $0.79
Dec2013 $7.32
Dec2012 $5.67
Dec2011 $8.32
Dec2010 $5.56
Dec2009 $3.58
Dec2008 $8.34
Dec2007 $6.44
Dec2006 $4.87
Dec2005 $6.48
Dec2004 $2.80
Dec2003 $1.98
Dec2002 $1.31
Dec2001 $1.55
Dec2000 $2.13
Dec1999 $0.62
Dec1998 $0.50

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate -$0.46
Dec2017 -$1.09
Dec2016 -$1.47
Dec2015 -$0.42
Dec2014 $4.83
Dec2013 $6.60
Dec2012 $6.25
Dec2011 $6.51
Dec2010 $5.66
Dec2009 $5.79
Dec2008 $6.52
Dec2007 $5.25
Dec2006 $4.26
Dec2005 $3.58
Dec2004 $2.07
Dec2003 $1.64
Dec2002 $1.39

Recommended Reading:

Other ModernGraham posts about the company

Most Overvalued Stocks of the S&P 500 – March 2017
Occidental Petroleum Corp Valuation – February 2017 $OXY
Occidental Petroleum Corp Valuation – August 2016 $OXY
Occidental Petroleum Corporation – 2015 Update $OXY
21 Companies in the Spotlight This Week – June 14, 2014

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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