Occidental Petroleum Now Looks Fairly Valued; JPMorgan Lifts To $80

JPMorgan’s Phil Gresh likes Occidental Petroleum Corporation OXY's “combination of offense and defense,” and mentioned that the stock valuation currently prices in the medium-term expectations.

Gresh downgraded the rating on the company from Overweight to Neutral, while raising the price target from $74 to $80.

Guidance Looks Conservative

“Looking ahead, upside could come from further beats on solid volume/cost trends as well as Chemicals margins. Midstream continues to be a nagging headwind on the margin,” the analyst stated.

Although Occidental Petroleum saw significant headwinds related to pricing and capture rate during the trough of the cycle in 1Q, Gresh believes that costs continued to trend positively, at $11.6/bbl in the United States, as compared to the full-year guidance of $13/bbl.

Related Link: Occidental Petroleum CEO Says Crude Downturn Has 3-Year Lifespan; Industry Is Halfway Through Current Cycle

Production Growth

“Permian Resources production also impressed at 128kboe/d, well above guidance of 121kboe/d,” the analyst pointed out.

In fact, Gresh expects the company to beat the full-year production guidance of 4–6 percent growth, raised from the earlier 2–4 percent growth guidance.

Gresh estimates production growth of 2 percent for 2017, driven by the carryover benefits from the re-ramp in the Permian basin, as well as from Oman and Al Hosn.

Midstream Challenges Continue

Although Occidental Petroleum saw a tough quarter in Midstream, Gresh noted that some of the challenges were one-time factors.

While CEO Vicki Hollub expects earnings from $150–$200 million from Midstream, Gresh believes this could be a conservative outlook.