In April 2013 it traded as low as $79.16, and on Nov. 22 of last year Occidental hit its 52-week high of $99.42. Since then it has traded in a range between $97.84 on the high side and as low as $85.90 on Feb. 5 of this year. Recent price action suggests to me that it may be ready to cool down and head for the lower end of that range.
I'm still a big believer in the company. Occidental is one of the largest U.S. oil and gas companies based on equity market capitalization. Its wholly owned subsidiary, OxyChem, manufactures and markets chlor-alkali products and vinyls. Shares are trading with a trailing price-to-earnings ratio of only 13.2 and a forward one-year PE of about 13.5.
The following one-year chart of Occidental Petroleum highlights some of the compelling reasons its stock price has done so well.
The company's quarterly revenue-per-share growth and year-over-year diluted earnings-per-share growth has been stellar. Last quarter its diluted EPS growth was an amazing 392%!
Looking ahead, it appears that Oxy faces some headwinds that are likely to curtail those earnings.
Sterne Agee analyst Tim Rezvan recently tweaked his earnings estimates for companies materially exposed to Permian Basin crude pricing -- and that includes Occidental Petroleum. He's given me permission to quote his comments on Occidental, which I find credible from both a fundamental and technical perspective.
Keep in mind that Occidental will step into the earnings confessional before the markets open on Monday, May 5, with the release of its first quarter 2014 financial results.
Rezvan said, "Updating estimates at this time for Occidental is like writing in the sand before high tide, given the large-scale portfolio changes coming soon (updated guidance will reflect recent Hugoton asset sale, California spin likely by year-end)." He concluded, "Nonetheless, we trim our outlook to reflect a sharper decline in natural gas production through 2015 and wider crude price differentials that are more in line with other Permian-focused operators."
He lowered his estimate for Occidental's first quarter EPS 8.7% from $1.84 to $1.68. For all of 2014 he also lowered his EPS outlook to $7.02 from $7.62, nearly an 8% haircut. Looking ahead to 2015, he also lowered guidance for EPS from $7.89 down to $7.31.
This fits with my own projections for Oxy's sales growth and revenue. I'm anticipating 2014 first-quarter revenue to be 4% higher than the year-ago quarter. I peg Q1 revenue to come in at about $6.1 billion. For the rest of 2014, I'm looking for quarterly revenue growth to slow down to between 2.5% and 3%.
From a technical perspective, this is likely to push the company's share price to the lower end of this year's trading range. It wouldn't surprise me to see it test $86 before it begins its next push higher.
As Occidental Petroleum nears the end of 2014 and the spinoff of its California operations, I'm expecting the share price to reach as high as $110.
If I'm correct, and investors are able to buy shares at $86, that $110 price target offers a potential gain of 28%. At $86, the current annual dividend of $2.88 yields a rewarding 3.35%.
Any way you slice it, Occidental Petroleum has a bright, shareholder-friendly plan to sell assets and spin off parts of the company to shareholders. My sense is that we're likely to have a lower entry price at some point after the May 1 earnings announcement.
When it comes to Occidental Petroleum, my approach is if you already own shares, be ready to add to your holdings if a correction ensues. If you've been waiting to buy and participate in the end-of-year spinoff you should welcome a stock correction as the chance you've been waiting for.
At the time of publication the author had a position in OXY.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.
Marc Courtenay is the founder and owner of Advanced Investor Technologies, LLC, as well as the publisher and editor of www.ChecktheMarkets.com.