On Jan 9, 2014, we have reiterated our Neutral recommendation
Occidental Petroleum Corporation
). The company currently has a Zacks Rank #3 (Hold).
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Why the Reiteration?
The reiteration is primarily based on the company's
over-dependence on commodity price movement, increasing
competition from other operators in the sector and risks
associated with damages of exploration and production
infrastructure. However, we have pointed out several catalysts,
including the company's strong financial position, a
well-diversified assets portfolio and disciplined investment
strategy, which may help to mitigate those negatives.
In the third quarter of 2013, Occidental's pro forma earnings
surpassed the Zacks Consensus Estimate. Quarterly earnings jumped
15.9% year over year, primarily on the back of an increase in
revenues and lower interest expenses as well as operating
We believe that Occidental's over dependence on crude oil price
movement may be affecting its anticipated growth, as it is a
crude oil-levered organization with no refining activities.
In addition, the company's businesses operate in highly
competitive environments and face strong competition from the
state-owned foreign oil companies, major integrated oil companies
and independent producers of oil and natural gas. The growing
competition could negatively impact the company's profitability
and growth trajectory.
On the positive side, we view Occidental as an organization with
a systematic capital spending program and higher operating
efficiencies on the back of strong financial position, which will
subsequently increase its future reserves.
In addition, a steady production growth of Occidental's
diversified assets located at different resource-rich locations
and scheduled progress at the Al Hosn gas project in Abu Dhabi
are expected to play an important role to boost the company's
Occidental has a steady dividend payment record. During the first
nine months of 2013, the company paid approximately $1.0 billion
as cash dividend. The practice of returning wealth to
shareholders will help it to attract investors.
Other Stocks to Consider
Some better-ranked stocks in the same sector include
Athlon Energy Inc.
Harvest Natural Resources Inc.
Devon Energy Corporation
). While Athlon Energy and Harvest Natural Resources carry a
Zacks Rank #1 (Strong Buy), and Devon Energy holds a Zacks Rank