Occidental Petroleum’s (NYSE:OXY) balance sheet will see improvements in 2022

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As the vast market collapses at a speed not seen for a long time, Western Oil Company (NYSE: OXY) defies gravity, rising more than 130% year-to-date.

While the energy sector is doing well, mainly due to geopolitical pressures, OXY is showing the power of the brand behind its biggest shareholder Berkshire Hathaway.

Check out our latest analysis for Occidental Petroleum

First quarter 2022 results

  • EPS: 4.96 USD (compared to 0.11 USD in 1Q 2021).
  • Revenue: $8.35 billion (up 58% from 1Q 2021).
  • Net revenue: US$4.64 billion (up US$4.54 billion from 1Q 2021).
  • Profit margin: 56% (vs. 1.9% in 1Q 2021). The increase in the margin is mainly explained by the increase in revenues.

Revenue beat analysts’ estimates by 5.9%. Earnings per share (EPS) also exceeded analysts’ estimates of 127%.

Over the next year, revenue is expected to grow 17%, compared to a 20% growth forecast for the industry in the United States. Over the past 3 years, on average, earnings per share have fallen by 15% per year, but its stock price has increased by 7% per year, which means it is well ahead of earnings.

Buffet buys on improving fundamentals

OXY managed to comfortably beat EPS ($2.12 vs consensus of $2.03) while generating record quarterly free cash flow of $3.3 billion. More importantly, the company reduced its debt by the same amount and reinstated its dividend. Additionally, the company is pursuing a major US$3 billion buyback, which will repurchase nearly 5% of the outstanding shares.

So far, OXY’s bet on acquiring Anadarko Petroleum has worked because it was a bet that oil prices would do well in the future. The acquisition doubled its reserves in the Permian Basin, the largest oil-producing region in the United States, where production is expected to hit a record high in June.

So it’s no surprise that Warren Buffett bought more than 143 million shares this year, taking his stake to 15.3% of the company. As a holder of more than 10%, Berkshire Hathaway must disclose transactions to the SEC within 2 days.

OXY recovery and growth projections

It is undeniable that markets are sometimes efficient, but prices do not always reflect the underlying performance of companies. By comparing earnings per share (EPS) and share price changes over time, we can get an idea of ​​how investors’ attitudes toward a company change over time.

Occidental Petroleum has increased its earnings per share over the past year from a loss to a profit. The result looks like a big improvement, so we’re not surprised the market likes growth. Inflection points like this can be a good time to take a closer look at a business.

Below you can see how EPS has evolved over time (find out the exact values ​​by clicking on the image).

NYSE: OXY earnings per share growth May 16, 2022

Good to see significant insider buying over the past three months. That said, we believe earnings and revenue growth trends are even more critical factors to consider. It might be interesting to consult our free Occidental Petroleum earnings, revenue and cash flow report.

Conclusion

Over the past year, the stock has gained 156%, an impressive return. However, most of these investments came in the last few months around the time of Warren Buffett’s investment disclosure. So far, with growing geopolitical concerns and sanctions against energy exporting countries, it is likely that we will see high oil prices in the near future. Thus, Occidental Petroleum will likely realize its plan to get rid of much of its debt and improve its balance sheet.

Since the stock has risen so much, we would refrain from price chasing here and instead look for pullback opportunities. After all, OXY is a stock more than twice as volatile as the market average.

While it is worth considering the different impacts that market conditions can have on the stock price, other factors are even more important. For example, we have identified 4 warning signs for Occidental Petroleum (1 is potentially serious) of which you should be aware.

Occidental Petroleum isn’t the only stock insiders are buying. So take a look at this free list of growing companies with insider buying.

Please note that the market returns quoted in this article reflect the average market-weighted returns of stocks currently trading on US exchanges.

Simply Wall St analyst Stjepan Kalinic and Simply Wall St have no position at any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials.

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