Key Points
- Warren Buffett and Berkshire Hathaway bought more Occidental Petroleum in December.
- The total share is almost 30%; The purchases could indicate that fourth-quarter earnings will show another reduction in debt.
- Analysts and institutions help support the stock price in 2024.
After six months of inaction, Warren Buffett and Berkshire Hathaway (NYSE: BRK.A) took the bait and bought more Occidental Petroleum (NYSE: OXY). The lure was a perennial low stock price not seen since the firm began buying common stock. Purchases in mid-December totaled about 8 million shares, bringing the total shareholding to about 30%. That’s in addition to warrants for about 10% of the stock and preferred stock that are central to Berkshire’s investments. The preferred shares were purchased in 2018; Occidental has used the capital to facilitate acquisitions that today drive cash flow and shareholder value.
Buffett likes Occidental’s improving financial health
Berkshire’s purchases are notable for more than just their face value. They confirm Occidental’s strong and rapidly improving financial condition and may also indicate that another debt reduction is on the way. Coincidentally, Berkshire Hathaway began buying common stock when Oxy began paying down its debt, most notably the previously mentioned preferred stock.
Occidental’s third-quarter 2024 results were mixed, with revenue declining due to lower oil prices but coming in less than expected and compounded by a significant margin. The revenue growth was driven by increased production, which also contributed to higher profitability. The bottom line included outperformance of 3,000 basis points and sufficient free cash flow, about $1.5 billion, to support return on equity and debt reduction prospects.
Balance sheet highlights include an increase in net debt offset by a tripling of cash, increases in accounts receivable, inventory, and current and total assets. Total assets increased by 20%, only partially offset by an increase in liabilities, resulting in equity growth of approximately 18%. In terms of cash and leverage, the company had over $1.8 billion in cash and net leverage of less than 0.75x equity.
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Other benefits of Occidental’s improved cash flow and balance sheet include the ability to pay dividends and maintain annual distribution growth. The company is paying out about 25% of projected 2024 earnings, with earnings expected to rise in 2025, so there’s plenty of room in cash flow. The next distribution increase is due in the first quarter of 2025 and is likely to be another double-digit increase due to earnings growth guidance. Earnings are expected to grow nearly 5% in 2025, but the forecast could be low. Economic activity grew at an above-target rate through 2024 and is likely to continue to be strong in 2025, supported by lower interest rates and easing regulatory hurdles.
Analysts and institutions support Oxy stock price in 2024
The sell side, including analysts and institutions, is increasing support for OXY stock price in 2024. Analysts have lowered their price targets for the stock this year, but the decline is offset by rising coverage, a Hold/Moderate Buy rating and the potential for share price upside. 30% upside potential based on consensus. The most recent targets suggest the consensus figure is high, but even the lower range provides support, with the lowest recorded target more than 5% above late December price action.
As for the institutions, they bought on balance sheet in 2024. Their activity turned bearish in the third quarter but returned to trend in the fourth quarter, with net activity accounting for about 10% of these energy stocks’ market capitalization. Institutions, excluding Berkshire Hathaway, hold about 50% of the stock, providing significant tailwind. The net stake, including Berkshire’s assets, is close to 80% and growing.
Occidental Petroleum bounced off support target: bullish rally possible
Occidental’s share price rebounded from multi-year lows in December and is now higher. The MACD and Stochastic are consistent with this forecast, both in low ranges and set for a strong signal. Stochastic is already showing bullish crossovers corresponding to support at current price points; The MACD has not crossed yet, but may do so soon. In this scenario, 30-day moving average support will strengthen and push the market higher, potentially reaching the $62 consensus by the end of the first or early second quarter of 2025.
Companies in this article:
| Company | Current price | Price change | Dividend yield | P/E ratio | Consensus rating | Consensus target price |
|---|---|---|---|---|---|---|
| Berkshire Hathaway (BRK.A) | US$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 writer for InsiderTrades.com since 2019.
Areas of Specialization
Technical analysis, S&P 500; retail, consumer, consumer staples, dividends, high yield, small cap, technology, economic data, oil, cryptocurrencies
Education
Associate in Culinary Technology
Past experience
Market watcher, trader and investor of numerous websites. Founded Passive Market Intelligence LLC to provide market research analytics.