Why Occidental Petroleum Stock Crushed it on Wednesday
Key Points
He now considers it to be a bargain stock.
Geopolitical factors should also support the buy case.
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For the most part, stock analysts tend to be cautious professionals. When they make a change in their coverage of a company, it tends to be incremental, like adding a few dollars to a price target. On the relatively rare occasions they change a stock recommendation, it tends to be up or down one peg.
That wasn't the case on Wednesday with Occidental Petroleum (NYSE: OXY), which was the beneficiary of not only a recommendation upgrade but a double upgrade from a pundit tracking its fortunes. Largely because of this action, Occidental's shares closed that trading session nearly 4% higher.
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Doubling down
The upgrading party was Evercore ISI's Stephen Richardson, who moved his rating on Occidental from underperform (sell, in other words) to outperform (buy), skipping the usual stop of neutral. The analyst also raised his price target to $65 per share from $58.
Image source: Getty Images.
According to reports, Richardson's new -- and very different -- take on Occidental is based on what he describes as the company's "materially de-levered balance sheet." The company's recent and significant debt reduction has notably improved its financials. This should result in higher free cash flow (FCF), and better returns for investors.
And while Richardson doesn't believe Occidental's FCF growth will hit the double-digit rates expected for some large oil industry rivals, the company's comparatively low valuations make its stock a bargain just now.
Fuel for a rally
I'd also say that the jumped-up oil price, largely driven by the Iran war, looks as if it'll remain lofty. At this point, the start-then-stop moves toward peace (or at least a genuine ceasefire) in the conflict aren't bringing it to a resolution, and I don't see that changing soon. For this and the reasons Richardson cited in his update, I'd say Occidental looks attractive for oil sector bulls.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.
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