A Buffett Buyout at Occidental
Occidental Petroleum (OXY), one of the best-performing stocks in the S&P 500, posted strong third quarter figures, with revenues at $9.5 billion, up 40% YoY, compared to $6.8 billion a year ago, reports Todd Shaver, editor of Bull Market Report.
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The company posted a profit of $2.5 billion, or $2.44 per share, compared to $840 million, or $0.87 per share during the same period last year, with a beat on the top line, and a slight miss at the bottom.
The company had a stellar quarter across the board, with production exceeding guidance by 25,000 barrels of oil equivalent per day, at nearly 1.2 million barrels per day.
Occidental’s midstream and downstream segments, namely OxyChem, and its marketing business exceeded guidance with a profit of $580 million, and $100 million, respectively, which further led to an increase in the full-year guidance for all three.
Occidental Petroleum represents a remarkable turnaround story, from the verge of a catastrophe in mid-2020, when it posted a staggering loss of $17 per share, with enormous debt on its books, to the best performer among energy stocks this year, after a monumental 560% rally.
The stock has since won the approval of Warren Buffett who currently owns a 21% stake in the company. We wouldn’t be surprised to see Warren buy more, and we wouldn’t be surprised to see Warren make an offer for the whole company.
While its stellar performance is mostly owing to the elevated energy prices this year, the company has since made effective use of this crisis to fundamentally realign its balance sheet.
This includes investing the bulk of its cash flows to pare down its excessive debt, with $1.3 billion in repayments during the third quarter alone, and $9.6 billion YTD. The face value of its debt now stands at $19 billion, down from nearly $40 billion in 2020.
The company continues to generate robust cash flow, at $4.3 billion during the third quarter, of which $1.8 billion was used for repurchases, bringing YTD stock buybacks to $2.6 billion of the $3 billion tranche that was approved by the Board.
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We can see a new tranche being authorized when the first one is depleted. Management loves buying back stock. As the debt levels drop, the company will increase its rewards for shareholders, especially with the US government promising to provide support for crude oil prices each time it falls below $80 a barrel.
Its robust liquidity profile consists of $1.4 billion in cash, a number that will move steadily higher as the company continues to execute at this high level. Our target price is $90, and we believe it can get there by the end of the year or early next.
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