Occidental Petroleum (OXY – Free Report) is one of the most watched stocks by Zacks.com visitors lately. As such, it might be a good idea to review some of the factors that could impact the stock’s near-term performance.
Shares in this oil and gas exploration and production company have returned -2.9% over the past month, while the Zacks S&P 500 Composite has returned +2.1%. The Zacks Oil and Gas – Integrated – United States industry, which includes Occidental, is down 2.2% over the period. The crucial question is now: Where could the share develop in the short term?
While media releases or rumors of a material change in a company’s business prospects usually cause the stock to “trend” and result in an immediate price change, there are always some basic facts that ultimately influence the buy and hold decision.
Revisions to earnings estimates
Rather than focusing on anything else, at Zacks we make a point of evaluating a company’s change in earnings guidance. This is because we believe the fair value of its shares is driven by the present value of its future income streams.
Essentially, our analysis is based on how sell-side analysts who cover the stock revise their earnings estimates to reflect the latest business trends. As a company’s earnings estimates increase, so does the fair value of its stock. And when a stock’s fair value is higher than its current market price, investors tend to buy the stock, causing the stock price to rise. For this reason, empirical studies suggest a strong correlation between trends in earnings estimate revisions and short-term stock price movements.
For the current quarter, Occidental is expected to report earnings of $1.17 per share, a -63% change from the year-ago quarter. The Zacks Consensus Estimate is down -13.1% over the last 30 days.
For the current fiscal year, the consensus earnings estimate of $5.19 points to a change of -44.5% year-on-year. In the last 30 days, this estimate has changed by -10.6%.
For the next fiscal year, the consensus earnings estimate of $6.31 marks a +21.5% change from what Occidental was expected to report a year ago. In the last month, the estimate has changed by -4.3%.
Our proprietary stock ranking tool, the Zacks Rank, has a strong, third-party audited track record and provides a more meaningful picture of a stock’s price development in the near future by effectively harnessing the power of earnings estimate revisions. Based on the magnitude of the recent consensus estimate change, along with three other factors related to earnings estimates, Zacks ranks Occidental 3rd (Hold).
The chart below shows the development of the company’s forecast 12-month EPS estimate:
12 Month EPS
Sales Growth Forecast
While earnings growth is arguably the best indicator of a company’s financial health, nothing as such happens when a company is unable to grow its earnings. After all, it is almost impossible for a company to increase its profits over a long period of time without increasing its sales. Therefore, it is important to know a company’s potential revenue growth.
For Occidental, the consensus revenue estimate for the current quarter of $7.48 billion suggests a -30.4% change from a year earlier. For the current and next fiscal years, estimates of $30.5 billion and $31.89 billion indicate a change of -17.8% and +4.6%, respectively.
Latest reported results and surprise history
Occidental reported revenue of $7.26 billion for the most recent quarter, a -14.9% year-over-year change. Earnings per share for the same period were $1.09, compared to $2.12 a year ago.
Compared to the Zacks consensus estimate of $7.54 billion, reported earnings represent a surprise of -3.68%. The EPS surprise was -16.15%.
In the past four quarters, the company beat EPS estimates just once. The company twice beat consensus sales estimates during this period.
No investment decision can be efficient without considering a stock’s valuation. Whether a stock’s current price accurately reflects the intrinsic value of the underlying business and the company’s growth prospects is a key factor in future stock price performance.
When comparing the current values of a company’s valuation multiples, such as price-to-earnings (P/E), price-to-sales (P/S) and price-to-cash flow (P/CF) ratios, to its own historical values, it can be determined whether the stock is fair, overvalued or undervalued. Comparing the company to its peers using these parameters gives a good idea of the reasonableness of the stock price.
As part of the Zacks Style Scores system, the Zacks Value Style Score (which assesses both traditional and unconventional valuation metrics) organizes stocks into five groups from A to F (A is better than B; B is better than C, etc.). ), making it helpful to determine whether a stock is overvalued, correctly valued, or temporarily undervalued.
Occidental has an “A” rating on this score, suggesting the company is trading at a discount to its peers. Click here to view the values of some of the assessment metrics that determined this grade.
The facts discussed here and much other information on Zacks.com could help determine whether or not the market excitement surrounding Occidental is worth paying attention to. However, its No. 3 Zacks rank suggests that the company could perform in line with the broader market in the near term.
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