Key Points
- Warren Buffett and Berkshire Hathaway bought more Occidental Petroleum in December.
- The total holding is up to nearly 30%; the buys may indicate another debt reduction will be revealed in the Q4 release.
- Analysts and institutions help support the stock price in 2024.
After six months of inactivity, Warren Buffett and Berkshire Hathaway (NYSE: BRK.A) rose to the bait and bought more Occidental Petroleum (NYSE: OXY). The bait was a multi-year low share price not seen since the firm started buying common stock. The purchases in mid-December amounted to roughly 8 million shares, bringing the total holding up to about 30% of the stock. This is in addition to warrants equally to about 10% of the stock and the preferred stock central to Berkshire’s investment. The preferred stock was bought in 2018; Occidental used the capital to assist acquisitions that drive cash flow and shareholder value gains today.
Buffett Likes Occidental’s Improving Financial Condition
Berkshire’s purchases are noteworthy for more than their face value. They affirm Occidental’s robust and rapidly improving financial health and may also indicate that another debt reduction will come soon. Coincidentally, Berkshire Hathaway started buying common stock when Oxy began paying down its debt, primarily the preferred stock mentioned before.
Occidental's FQ3 2024 results were mixed, with revenue declining on lower oil prices but less than expected and compounded by a substantial margin. The revenue strength was driven by ramping production, which also aided margin. The bottom line results included 3000 basis points of outperformance and sufficient free cash flow, about $1.5 billion, to sustain the capital return and debt reduction outlook.
Balance sheet highlights include increased net debt offset by a 3x build in cash, increased receivables, inventory, and current and total assets. Total assets are up 20%, only partially offset by increased liability, which left equity up about 18%. Regarding cash and leverage, the company had more than $1.8 billion in cash and a net-debt leverage of less than 0.75x equity.
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Other benefits of Occidental’s cash flow and balance sheet improvement are the ability to pay dividends and sustain annual distribution increases. The company pays about 25% of its 2024 earnings outlook, with earnings expected to grow in 2025, so there is ample room in the cash flow. The next distribution increase is due in CQ1 2025 and will likely be another double-digit increase because of the earnings growth outlook. Earnings are expected to grow by nearly 5% in 2025, but the forecast may be low. Economic activity has been expanding at an above-target pace throughout 2024 and will likely continue to be strong in 2025, underpinned by lower interest rates and easing regulatory headwinds.
Analysts and Institutions Support Oxy’s Stock Price in 2024
The sell-side, including analysts and institutions, adds to OXY’s stock price support in 2024. The analysts have lowered their stock price targets this year, but the reduction is offset by rising coverage, a Hold/Moderate Buy rating, and the potential for a 30% upside at the consensus. The freshest targets suggest the consensus figure is high, but even the low-end range provides support, with the lowest target on record more than 5% above the late-December price action.
Regarding the institutions, they have bought on balance in 2024. Their activity turned bearish in Q3 but reverted to the trend in Q4, with net activity worth about 10% of the market cap of this energy stock. The institutions, excluding Berkshire Hathaway, own about 50% of the stock, providing a significant tailwind alongside it. The net interest, including Berkshire’s holdings, is closer to 80% and growing.
Occidental Petroleum Bounces From Support Target: Bullish Upswing Possible
Occidental’s share price bounced from its multi-year low in December and is now indicated higher. The MACD and stochastic align with this outlook, with both low in their ranges and set up to fire a strong signal. Stochastic is already showing bullish crossovers aligning with support at the current price points; MACD has yet to make its crossover but could do so soon. In this scenario, support at the 30-day moving average will intensify and propel the market upward, potentially reaching the consensus of $62 by late Q1 or early Q2 2025.
Companies in This Article:
| Company | Current Price | Price Change | Dividend Yield | P/E Ratio | Consensus Rating | Consensus Price Target |
|---|
| Berkshire Hathaway (BRK.A) | $684,908.50 | -0.4% | N/A | 9.22 | N/A | N/A |
| Occidental Petroleum (OXY) | $48.56 | +0.7% | 1.81% | 12.65 | Hold | $62.10 |
Experience
Thomas Hughes has been a contributing writer for InsiderTrades.com since 2019.
Areas of Expertise
Technical analysis, the S&P 500; retail, consumer, consumer staples, dividends, high-yield, small caps, technology, economic data, oil, cryptocurrencies
Education
Associate of Arts in Culinary Technology
Past Experience
Market watcher, trader and investor for numerous websites. Founded Passive Market Intelligence LLC to provide market research insights.
