OXY Stock Outperforms Industry in Last Two Months: How to Play

Occidental Petroleum (OXY) is leveraging strategic acquisitions, particularly CrownRock, and its dominant position in the Permian Basin to boost production, targeting 1,390-1,440 Mboe/d in 2025 with Permian accounting for 760-786 Mboe/d, while also focusing on debt reduction; however, the company faces headwinds from commodity price volatility, lacks commodity hedging, and has seen its 2025 and 2026 EPS estimates decline by approximately 26% and 27%, respectively.

Analysis

Occidental Petroleum (OXY) demonstrates robust operational capabilities, primarily driven by its strategic acquisitions, such as CrownRock, and a significant, high-return drilling inventory in the Permian Basin, which is projected to contribute 760–786 Mboe/d to a total 2025 production target of 1,390–1,440 Mboe/d. The company is actively strengthening its balance sheet, having achieved a $4.5 billion short-term debt reduction in 2024 with plans for further deleveraging by mid-2027, supported by free cash flow and non-core asset sales. OXY's stock has recently outperformed peers—gaining more than ConocoPhillips' 9.6% and Hess Corporation's 9.8% over the past two months—and trades above its 50-day SMA, indicating bullish technical momentum; additionally, the company has a strong track record of surpassing earnings estimates, with an average surprise of 24.34% over the last four quarters. However, significant headwinds persist: OXY operates without active commodity hedging strategies as of December 31, 2024, exposing it to price volatility. Furthermore, consensus earnings estimates for 2025 and 2026 have seen substantial downward revisions of 26.09% and 27.17%, respectively, over the past 60 days, a trend also observed in peers like ConocoPhillips whose estimates fell 18.93% and 25.40% for the same periods. OXY also trades at an EV/EBITDA TTM of 5.11X, a premium to the industry average of 4.85X, and its ROE of 16.6% slightly trails the industry's 16.89%.

Key Decisions for Investors

• Given Occidental's strong operational footing in the Permian Basin, consistent earnings beats, and progress on debt reduction, current investors might consider maintaining their holdings, aligning with the Zacks Rank #3 (Hold) assessment.
• Prospective investors should meticulously evaluate the company's appealing production growth outlook and dominant Permian exposure against significant risks, including its unhedged vulnerability to commodity price fluctuations, the notable recent decline in forward earnings estimates, and a current valuation premium over the industry.
• Key factors to monitor closely include trends in global commodity prices, Occidental's execution of its debt reduction strategy and planned non-core asset divestitures, and its ability to convert Permian investments into sustained free cash flow amidst evolving market conditions.