Why Occidental Petroleum Is the Least Volatile E&P Stock

OXY is the least volatile

Occidental Petroleum (OXY), an E&P (exploration and production) company involved in oil & gas exploration & production, midstream activities, and the manufacturing of chemicals, is the least volatile E&P stock. OXY’s 200-day volatility was 20.9%, which was lower than that of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) at 27.6% and the Alerian MLP ETF (AMLP) at 21.6%. This could be attributed to low earnings volatility resulting from the company’s business diversification. Oil and gas, chemical, and midstream and marketing formed 59.4%, 23.9%, and 16.7% of the company’s total segment income in the first six months of 2018, respectively.

Why Occidental Petroleum Is the Least Volatile E&P Stock

OXY offers decent dividend yield

Occidental Petroleum has seen YoY cash flow from operation (or CFFO) growth in four out of the last five quarters. The average YoY CFFO growth was 46.7% in the last five quarters. The stable cash flow growth has led to the company’s strong historical dividend growth. According to a recent investor presentation, OXY has posted a 12% dividend CAGR during the 2012 through 2017 period, which is higher than the 7.5% dividend CAGR for the S&P 500. Based on the recent dividend, OXY offers a decent 4% dividend yield. Analysts expect OXY to post 54.3% and 16.1% YoY CFFO growth during 2018 and 2019, respectively, and a 3.7% decline during 2020.

Analysts’ recommendations

66.7% of analysts rate Occidental Petroleum as a “buy” and the remaining 33.3% rate it as a “hold” as of August 29. Morgan Stanley last initiated coverage on OXY with an “overweight” rating, which is equivalent to “buy.” Overall, OXY has seen six rating updates over the past six months including four upgrades and two new coverage initiations. OXY is currently trading below the low range of analysts’ target price. Its average target price of $97.0 implies ~21% upside potential from the current price levels.

In the next article, we’ll look into the second least volatile E&P stock, EOG Resources (EOG).