Sterne Agee Isn't Gushing About Occidental Petroleum

NEW YORK (TheStreet) -- How can you mend a broken heart? That's from a Bee Gees song. But it could be how investors in Occidental Petroleum (OXY) are feeling.

We thought Occidental had good news for us during its Jan. 30 earnings conference call about its plans to split the company and sell some assets. Instead, we were disappointed by news the asset sale results will be announced closer to midyear.

OXY earnings numbers weren't a disappointment. It announced core income for the fourth quarter of 2013 of $1.4 billion ($1.72 per diluted share), compared with $1.5 billion ($1.83 per diluted share) for the fourth quarter of 2012. Net income was $1.6 billion ($2.04 per diluted share) for the fourth quarter of 2013, compared with $336 million (42 cents per diluted share) for the fourth quarter of 2012.

Speaking of asset sales, the fourth quarter of 2013 included an after-tax gain of $665 million (83 cents per diluted share) from the sale of a portion of an investment in the General Partner of Plains All American Pipeline (PAA). The details of the quarter can be found in the company's news release from Jan. 30.

Shares of OXY have been in decline since the stock crested at $99.42 on Nov. 22, 2013. Analyst Tim Rezvan, who covers OXY for Stearne Agee, sent me the following update with a title that piqued my curiosity. It read as follows:

"Despite a bullish outlook that highlighted a steep domestic oil production growth outlook, OXY shares performed in-line on Thursday, with investors disappointed by news that asset sale results will be announced closer to midyear. Despite the delay, it is clear that the one-two punch of California and the Permian Basin provide a strong foundation for oil growth. And we believe an acceleration in California demonstrates the company's comfort level with the permitting/regulatory environment."

But he didn't raise his neutral rating on OXY, and the following one-year chart may help to illustrate some of reasons.

OXY Chart
OXY
data by YCharts


The chart paints a colorful picture of some of the important and downward-sloping financial metrics that have helped to depress the stock's price. I spoke briefly by phone to the analyst, who stands by what he sent out to folks like me on Jan. 31. "It's my complete perspective as of now," Rezvan told me, and he gave me permission to quote his written analysis.

2014 Guidance Released, But Take With a Grain of Salt -- "Asset Sales Are Teed Up. The company announced a robust $10.2 billion capital program focused on growing domestic oil production by about 9% y/y, with a Permian/California focus (35% of total spending). However, guidance includes all assets, and select Mid-continent assets are currently being marketed, as is a minority stake in the MENA segment. While news on the sales has been deferred to midyear, we expect Occidental's portfolio to look very different by year-end 2014, forcing a reset on earnings/growth expectations."

That sounds hopeful, and with its current dividend yield of about 2.91% based on a share price of $88, you'll earn money while you wait for the company to bring forth good news that will let analysts like Rezvan "reset on earnings/growth expectations."

I've included the rest of his report below so you'll have a more complete overview of what a professional analyst like Tim Rezvan concludes as a takeaway from the OXY's quarterly report and earnings release. None of the details below has been changed, and I've included the disclosure that came with it.

Moving at a Measured Pace in the Permian Basin. "With cash cost inflation easing as a concern and the resource potential of the Permian crystallizing, Occidental established a $1.6 billion resource play program in the play in 2014, with 17 rigs running across the company's  about 2 million net acres to drill 172 horizontal and 190 vertical wells. 2014's spending increase is the first of a multiyear exploitation program planned that could grow production 10% per year through 2016."

California -- Dressed Up for a Monetization? "Similar to West Texas, cash opex concerns abated in 2013 and the company is now opening up the capital spigot, planning to spend $1.9 billion in 2014, (+$400 million y/y) to run a 27-rig drilling program across conventional, unconventional and steam/water flood fields. The planned activity is a bullish indicator on the current permitting environment in the state. Occidental plans to grow oil production 15% per year through 2016. CEO [Stephen] Chazen's comments during the call that his thoughts on monetizing/spinning California have not changed suggest we may hear news on this front by midyear."

Increase Estimates. "Based on 4Q results and formal 2014 guidance, we increase estimates based on a more robust oil growth outlook. In 2014/2015, EPS increases to $7.33/$7.87 from $6.92/$7.61 and EBITDA increases to $15.5/$16.9 billion from $15.0/$16.6 billion. We also introduce quarterly 2015 estimates."

Other information can be found by clicking on the report here.

As a closing comment, this report looks pretty upbeat to me, and so far TheStreet's Jim Cramer and Stephanie Link haven't changed their tune about OXY. If you don't own it, consider using further weakness in the stock's price during the current market slump as a chance to accumulate a very profitable energy firm.

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.

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Marc Courtenay is the founder and owner of Advanced Investor Technologies, LLC, as well as the publisher and editor of www.ChecktheMarkets.com.

Courtenay holds a Master's of Science degree in Psychology from California Polytechnic State University, and is a former senior vice-president of Investments for two major brokerage firms. He's been a fiercely independent investment "investigator" and a consulting contributor to the investment publishing world for over 30 years. In addition to his role as an investment publisher and analyst, he serves as a marketing consultant to the investment media industries.

In his role as a financial writer and editor, he specializes in unique investment strategies, growth with income stocks, overlooked investment themes, tax-advantaged themes, risk management, technologies to capture gains and reduce losses, real estate related opportunities,effective wealth preservation techniques, and the use of ETFs for diversification and asset allocation. He also follows and frequently writes about technology, health sciences, energy and resource companies. Because of his training and background in Clinical Counseling and Psychology, he enjoys writing about investor behavior, the herd mentality, how to turn investment mistakes into investment breakthroughs and the stock market's behavioral trends and patterns.

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