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Coronavirus crash: is Occidental Petroleum currently a ‘buy’?

Be greedy when others are fearful, so the saying goes.

Occidental Petroleum share price Source: Bloomberg

In April 2019, Warren Buffet announced that Berkshire Hathaway would provide Occidental Petroleum Corporation (OXY) with a US$10 billion equity investment.

The purpose of this investment? Help Occidental finance what would become a US$57 billion deal to acquire Anadarko Petroleum Corp.

That deal was finalised in May 2019, with Occidental acquiring Anadarko ‘for $59.00 in cash and 0.2934 shares of Occidental common stock per share of Anadarko common stock.’

At the time it looked like a juicy play on Buffett’s part, with it being noted that that Berkshire Hathaway will receive:

‘A warrant to purchase up to 80.0 million shares of Occidental common stock at an exercise price of $62.50 per share.’

Better still, it was flagged that:

‘The preferred stock will accrue dividends at 8% per annum (or with respect to dividends that are accrued and unpaid, 9%).’

For reference, in April 2019 Brent Crude hovered around US$70 per barrel and Occidental’s share price was trading close to US$65 per share.

How times have changed!

Over the last month the Coronavirus crisis kickstarted a supply-demand stock that has seen oil prices collapse.

Brent Crude oil prices currently hover near US$36 per barrel (somewhat above their weekly low of US$27.34 per barrel); while Occidental’s share price has been smashed: it last traded at US$11.80 per share, shedding 17% yesterday alone and currently sits ~80% lower from when Buffet struck that US$10 billion deal.

To find out more about what caused oil prices to collapse – as well as three currencies set to be most impacted by the current oil situation – click here now.

If volatile commodity prices kick-started OXY’s fall from grace, a 11 March announcement from the firm noting that Occidental would be slashing its dividend and aggressively cutting its capital spending almost certainly expedited this descent.

The company’s next quarterly dividend would come in at $0.11 per share – down from $0.79 per share.

Positively at least, ‘these actions lower our cash flow breakeven level to the low $30s WTI, excluding the benefit of our hedges, positioning us to succeed in a low commodity price environment,’ Occidental’s CEO Vicki Hollub said.

Occidental Petroleum share price: so is it a ‘buy’?

To answer the question of our headline, the decisive answer is no: analysts on average, don’t think Occidental Petroleum is a ‘buy’. Looking at the specifics, as it stands, OXY has 6 buy ratings, an overwhelming 17 hold ratings and 2 sell ratings, according to Bloomberg Data.

Interestingly though, Occidental Petroleum’s average 12-month price target seems well out of whack, currently sitting at US$41.45 per share – so as to imply potential upside of ~250% from yesterday’s price levels.

One is left wondering if these analysts are being greedy when others are fearful?

How to trade Occidental

What do you make of this situation: has Occidental been oversold or is the market reacting rationally to the current oil situation? Trade accordingly. For example, you can trade Occidental shares – both LONG and SHORT – through IG’s world-class trading platform now.

To buy (long) or sell (short) Occidental with CFDs, follow these simple steps:

  • Create an IG Trading Account or log in to your existing account
  • Enter ‘Occidental Petroleum’ or ‘OXY’ in the search bar and select it
  • Choose your position size
  • Click on ‘buy’ or ‘sell’ in the deal ticket
  • Confirm the trade

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

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