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Occidental Petroleum's (NYSE:OXY) Balance Sheet Will See Improvements in 2022

This article first appeared on Simply Wall St News.

With the broad market sinking at a velocity not seen in a long time, Occidental Petroleum Corporation ( NYSE: OXY ) is defying the gravity, rising over 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 largest stakeholder Berkshire Hathaway.

Check out our latest analysis for Occidental Petroleum

First-quarter 2022 results

  • EPS: US$4.96 (up from US$0.11 in 1Q 2021).

  • Revenue: US$8.35b (up 58% from 1Q 2021).

  • Net income: US$4.64b (up US$4.54b from 1Q 2021).

  • Profit margin: 56% (up from 1.9% in 1Q 2021). The increase in margin was primarily driven by higher revenue.

Revenue exceeded analyst estimates by 5.9%. Earnings per share (EPS) also surpassed analyst estimates by 127%.

Over the next year, revenue is forecast to grow 17%, compared to a 20% growth forecast for the industry in the US. Over the last 3 years, on average, earnings per share have fallen by 15% per year, but its share 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 (US$2.12 vs. consensus US$2.03) while delivering a record quarterly free cash flow of US$3.3b. More importantly, the company reduced its debt by the same amount and re-instated its dividend. Furthermore, the company is pursuing a significant buyback of US$3B, which will repurchase almost 5% of the shares outstanding.

So far, OXY’s gambit on the Anadarko Petroleum acquisition worked since it was a bet that oil prices would do well going forward. This acquisition doubled its reserves in the Permian Basin, the largest oil-producing region in the U.S, where the output is forecast to hit a record high in June .

Thus, it is not surprising that Warren Buffett bought over 143M shares this year, taking his stake to 15.3% of the company. As a holder of over 10%, Berkshire Hathaway must disclose transactions to SEC within 2 days.

OXY's Recovery and Growth Projections

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance.By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

Occidental Petroleum grew its earnings per share during the last year, moving from a loss to a profit. The result looks like a great improvement, so we're not surprised the market likes the growth.Inflection points like this can be a great time to take a closer look at a company.

Below you can see how EPS has changed over time (discover the exact values by clicking on the image).

earnings-per-share-growth
earnings-per-share-growth

It's good to see some significant insider buying in the last three months. That said, we think earnings and revenue growth trends are even more critical factors to consider. It might be worthwhile to look at our free report on Occidental Petroleum's earnings, revenue, and cash flow .

Conclusion

Over the last year, the stock gained 156%, an impressive return. However, most of that came in the last few months, during the time of Warren Buffett's investment disclosure. So far, with the growing geopolitical concerns and sanctions against energy-exporting nations, it is likely that we will see high oil prices in the near future. Thus, Occidental Petroleum will likely deliver on its plan to unload a lot of debt and improve the balance sheet.

Since the stock went up so much, we'd refrain from chasing prices here and instead look for any pullback opportunities. After all, OXY is a stock that is more than twice as volatile as the market average.

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

Occidental Petroleum is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.

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

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Simply Wall St analyst Stjepan Kalinic and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.