Western Petroleum (OXY – Free Report) is one of the most followed 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.
Over the past month, shares of this oil and gas exploration and production company have returned -18.8%, compared to a -0.6% change in the Zacks S&P 500 Composite. During that period, the Zacks Oil and Gas – Integrated – United States industry, which includes Occidental, lost 15.4%. The crucial question now is: What could the future direction of the stock be?
Although media reports or rumors of a significant change in a company’s business prospects usually cause the stock to trend and result in an immediate price change, there are always certain fundamental factors that ultimately drive the buy-and-hold decision.
Revisions to earnings estimates
Here at Zacks, we prioritize evaluating the change in forecasting a company’s future earnings over anything else. That’s because we believe the present value of its future earnings streams determines the fair value of its stock.
Essentially, we look at how sell-side analysts who cover the stock are revising their earnings estimates to reflect the impact of recent business trends. And when earnings estimates for a company go up, the fair value of its stock goes up. A higher fair value than the current market price attracts investors to buy the stock, causing the price to rise. For this reason, empirical research shows 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 $2.88 per share, a +800% change from the same quarter last year. The Zacks consensus estimate is up +3.3% over the last 30 days.
For the year-to-date, the consensus earnings estimate of $10.36 points to a +306.3% change from a year earlier. In the last 30 days, this estimate has changed by +4.4%.
For the next fiscal year, the consensus earnings estimate of $8.45 indicates a change of -18.4% from what Occidental was expecting a year ago. In the last month, the estimate has changed by +5%.
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 near-term price action by effectively harnessing the power of earnings estimate revisions. Occidental is rated Zack’s #3 (Hold) based on the magnitude of the recent consensus estimate change, along with three other factors related to earnings estimates.
The chart below shows the development of the company’s 12-month consensus EPS estimate:
12 Month EPS
Projected sales growth
As such, while earnings growth is arguably the best indicator of a company’s financial health, nothing happens when a company is unable to grow its earnings. After all, it’s nearly impossible for a company to grow its profits over a sustained period of time without increasing sales. Therefore, it is important to know a company’s potential revenue growth.
In the case of Occidental, the consensus estimate of $9.64 billion for the current quarter indicates a +60.3% year-over-year change. The estimates of $38 billion and $36.28 billion for the current and next fiscal years indicate changes of +44.4% and -4.5%, respectively.
Latest reported results and surprise history
Occidental reported revenue of $8.53 billion in its most recent reported quarter, a +55.7% year-over-year change. EPS of $2.12 for the same period compared to -$0.15 a year ago.
Compared to the Zacks Consensus estimate of $7.96 billion, reported earnings represent a surprise of +7.2%. EPS surprise was +7.61%.
Over the past four quarters, Occidental has beaten consensus estimates for earnings per share three times. The company beat consensus sales estimates every time during this period.
valuation
No investment decision can be efficient without considering a stock’s valuation. When predicting the future price development of a stock, it is crucial to determine whether its current price accurately reflects the intrinsic value of the underlying business and the company’s growth prospects.
Comparing the current value of a company’s valuation multiples, such as B. Price to Earnings (P/E), Price to Sales (P/S) and Price to Cash Flow (P/CF), with its own historical values help determine whether the stock is Fairly Valued, Overvalued or Undervalued while making the comparison of the company relative to its peers based on these parameters gives a good indication of how reasonable the stock price is.
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; and so on), making it helpful in determining whether a stock is overvalued, correctly valued, or temporarily undervalued.
Occidental is rated A on this front, indicating it is trading at a discount to its peers. Click here to view the values of some of the assessment metrics that led to this grade.
Conclusion
The facts discussed here, and plenty of other information on Zacks.com, could help determine whether or not the Occidental market clamor is worth paying attention to. However, its No. 3 Zacks rank suggests that it could move in line with the broader market in the near future.
