On Thursday, Truist Securities revised its stance on Occidental Petroleum (NYSE:OXY) stock, moving the rating from Buy to Hold and adjusting the price target to $69.00 from the previous $84.00.
The change reflects the analyst's projections that while Occidental is expected to see increased production in the second half of 2024 due to both organic growth and external activities in the Permian Basin, the benefits from its CrownRock acquisition may not be as significant as those from other recent deals.
The analyst anticipates that the CrownRock deal, with an effective date of January 1, 2024, will be finalized in the current quarter. Despite the acquisition bringing in quality inventory and production, the expected accretion is less than what has been observed in other recent transactions within the industry. This assessment has prompted the reduction in the price target and the downgrade of the stock rating.
Furthermore, the analyst forecasts that Occidental Petroleum will prioritize debt reduction, aiming to bring its debt down to $15 billion or less. This will be achieved by allocating the majority of its free cash flow (FCF) and the proceeds from its divestiture program, which is estimated to be between $4.5 billion and $6.0 billion, towards debt repayment. Consequently, minimal returns to shareholders are expected in the upcoming quarters.
The report underscores the strategic moves Occidental Petroleum is making to enhance its operations and financial health. However, the anticipated low shareholder returns in the near term and the scaled-back price target suggest a more cautious outlook on the stock's performance. The new Hold rating indicates that the firm advises investors to maintain their current position in the stock without increasing their holdings.
InvestingPro Insights
Occidental Petroleum's strategic focus on increasing production and reducing debt is mirrored in the latest metrics and analysis from InvestingPro. The company has a market capitalization of $56.2 billion and maintains a P/E ratio of 16.02, reflecting its current earnings relative to its share price. Notably, the company has demonstrated profitability over the last twelve months, with a gross profit margin of 59.58%, and analysts have a positive outlook with earnings revisions moving upwards for the upcoming period.
Two InvestingPro Tips that stand out for Occidental Petroleum are its low price volatility, which could appeal to investors seeking stability, and its impressive track record of maintaining dividend payments for 51 consecutive years, suggesting a commitment to shareholder returns despite the current forecast of minimal short-term distributions. These factors, combined with the prediction of continued profitability this year, may influence investor sentiment.
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