Tags: Occidental | Petroleum | undervalued | OXY

Occidental Petroleum Undervalued, Solid Growth Play

By    |   Monday, 13 February 2012 07:59 AM

Oil and gas player Occidental Petroleum (OXY) appears undervalued and could be a solid holding for growth and income investors. The energy outfit keeps beating analysts’ earnings estimates and has been raising its dividend annually.

Occidental relies on U.S. production for most of its reserves, lately increasing output in California and Texas. Another 28 percent of output comes from the Middle East/North Africa region and 7 percent from Latin America. Manufacturing chemicals is a smaller part of Occidental’s business.

For the fourth quarter of 2011, Occidental’s sales rose 19.2 percent to $6 billion, versus $5.1 billion in 2010. Net income for the quarter was $2.01 per share, up from $1.49.

Occidental also reported full-year 2011 sales of $23.9 billion, up 25.7 percent from a year ago, and net income of $8.32 per share. In 2011, cash flow from operations was hefty, totaling $12.3 billion.

Another plus is that Occidental regularly exceeds analysts’ earnings estimates. The Wall Street consensus estimate for 2012 has risen to $9.64 per share.

Steady growth

The Los Angeles oil company has said that long-term oil production will rise between 5 percent and 8 percent annually. Occidental owns 870,000 acres of land in California that holds more than 15 billion barrels of oil. This rich vein will propel future output increases, analysts contend.

Occidental also pays a 1.8 percent dividend, one which was increased by 21 percent in 2012. The company has hiked its dividend every year since 2002.

Like others, Credit Suisse recently raised its Occidental rating to outperform. The analysts cite increased drilling in highly profitable California wells and a strong free cash flow. The price target was raised to $135.

The company next reports on April 25.

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