We have maintained our Neutral recommendation on
Occidental Petroleum Corporation
), as the company faces pricing pressure across its product
line, cost overruns, and interruption in development and production
activities related to political instability in Latin America.
However, we have identified a few positive indicators that
might mitigate these negatives. These positives include Occidental
Petroleum's strong balance sheet and its presence in the Middle
East, along with its mature domestic asset bases.
CONOCOPHILLIPS (COP): Free Stock Analysis
OCCIDENTAL PET (OXY): Free Stock Analysis
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In the second-quarter 2012, Occidental Petroleum's earnings were
higher than the Zacks Consensus Estimates, while revenue
missed. Both revenue and earnings were below year-ago numbers due
to lower contribution from its operating segments, and lower
pricing of oil, natural gas and natural gas liquids.
Occidental Petroleum is a company with a strong balance sheet,
a steady capital investment program and high operational
efficiency. We expect the company to generate steady production
growth in the coming quarters with its diversified asset base in
different geographical territories. This will enable Occidental
Petroleum to strengthen its operational performance while enhancing
its financial flexibility.
On the negative side, Occidental Petroleum is a crude oil-levered
organization with no refining operations. The company's
over-dependence on the movement in crude oil prices is an
important threat for its future financial performance.
In addition, political instability and natural calamities are also
a vital challenge to the oil and gas industry. The companies
operating in this sector often face a major risk of damage to their
oil exploration and production infrastructure.
Despite facing several challenges, Occidental Petroleum has
successfully repositioned itself by divesting its non-core assets
and focusing on the upstream business. The resulting portfolio
includes low-risk and long reserve-life properties that provide a
steady production-growth in the future.
Zacks Consensus Estimates call for $1.61 in the third quarter
and $6.91 for full-year 2012. Occidental Petroleum Corporation
currently retains a Zacks #3 Rank, which translates into a
short-term Hold rating.
Los Angeles-based Occidental Petroleum Corporation along with its
subsidiaries engages in the exploration, development, production
and marketing of crude oil, natural gas liquids and natural gas.
The company has operations in the United States, Middle East/North
Africa and Latin America. The company competes with