Warren Buffett’s Berkshire Hathaway (BRK.B) has permission to buy 50% of Occidental Petroleum (OXY). Hence, many people will wonder if Occidental Petroleum (NYSE: OXY) is a value investment?
Occidental Petroleum was America’s sixth largest oil and gas company with a $55.86 billion market capitalization in April 2022, Statista estimates. Berkshire Hathaway owned 158.55 million OXY shares in the second quarter of 2022.
The Federal Energy Regulatory Commission gave Berkshire permission to buy 50% of Occidental Petroleum on 20 August 2022, CNN reports. Berkshire owned around 20.2% of Occidental in August 2022, CNN Estimates.
Is Occidental Petroleum making money?
Occidental Petroleum (OXY) is making more money. For example, Occidental’s quarterly operating income rose from $366 million on 30 June 2021 to $4.859 billion on 30 June 2022.
Similarly, Occidental’s quarterly gross profit grew from $1.406 billion on 30 June 2021 to $5.363 billion on 30 June 2022. Moreover, Occidental’s quarterly revenues grew from $6.102 billion on 30 June 2021 to $10.352 billion on 30 June 2022.
Occidental’s revenues grew at an astronomical rate of 69.65% in the quarter ending on 30 June 2022 Stockrow estimates. Stockrow credits Occidental Petroleum with five straight quarters of revenue growth over the past year. That growth includes 108.40% revenue growth in the quarter ending on 30 June 2021.
Occidental is generating enormous amounts of cash. It reported a quarterly operating cash flow of $5.329 billion on 30 June 2022. The quarterly operating cash flow grew from $3.314 billion on 30 June 2021. In contrast, Occidental’s quarterly ending cash flow fell from $2.298 billion on 30 June 2021 to -$550 million on 30 June 2022.
What Value does Occidental Petroleum (OXY) offer?
Strangely, Occidental Petroleum’s value fell over the last year. For instance, the cash and short-term investments fell from $4.749 billion on 30 June 2021 to $1.385 billion on 30 June 2022.
Comparatively, the Total Assets shrank from $79.937 billion on 30 June 2021 to $74.221 billion on 30 June 2022. Impressively, Occidental’s Total Debts fell from $36.917 billion on 30 June 2021 to $22.969 billion on 30 June 2022.
Hence, Occidental Petroleum has less debt and less value. Yet Mr. Market thinks Occidental’s value is increasing.
For example, Occidental Petroleum’s share value grew from $24.38 on 24 August 2021 to $74.91 on 24 August 2022. I think they overvalue Occidental Petroleum because its value is falling. The company makes more money, but it retains less cash.
Is Occidental Petroleum (OXY) a Value Investment?
However, Occidental Petroleum (OXY) offers some value. For instance, Occidental has scheduled seven 13₵ quarterly dividends through 17 July 2022.
Occidental shares offered a 52₵ forward dividend and a 0.69% forward dividend yield on 24 August 2022. Hence, I consider Occidental Petroleum a decent dividend stock.
In the final analysis, I think Buffett would be stupid to buy 50% of Occidental Petroleum. I consider OXY an overpriced stock that is a poor investment because it has little cash and loses value. Investors need to stay away from Occidental because it is in a morally questionable business and because it is losing value.
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