Of the 26 analysts tracking Occidental Petroleum (OXY), 69% recommend “buy,” 31% recommend “hold,” and none recommend “sell.” On February 12, OXY reported core income of $1.22 per diluted share, beating analysts’ average estimate by 7%. However, the next day, Morgan Stanley (MS) reduced its target price for OXY by $1 to $72, and on February 14, Jefferies reduced its price target by $2 to $74. Yesterday, OXY stock closed at $66.60.
Analysts expect Occidental Petroleum’s revenue to fall 13.9% sequentially in the first quarter, despite the company guiding for 10% year-over-year production growth this year. So far this quarter, average Brent and WTI crude oil prices have fallen 9.7% and 10.9% sequentially.
OXY’s annualized cash flow sensitivity to WTI at Midland and Brent crude oil prices is $90 million and $30 million with every dollar-per-barrel change in oil prices. Yesterday, Midland WTI was trading at a premium to Cushing WTI, a favorable factor for OXY’s cash flow.
Brent prices are set to largely outperform WTI prices this quarter because of the international oil supply shrinking, a situation more favorable for upstream stocks such as ConocoPhillips (COP). In fact, sequentially, COP’s total revenue is expected to fall 6.1 percentage points less than OXY’s. COP and OXY are among the S&P 500’s (SPY) top five upstream holdings.
Additionally, the discount between Midland and Magellan East Houston WTI has shrunk ~39% sequentially this quarter, which could also impact OXY’s midstream earnings. In the fourth quarter, this discount decreased ~32.8% sequentially, and OXY’s midstream revenue fell 5.1%.