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Investors Underappreciate Occidental Petroleum's Competitive Advantage, Analyst Says In Upgrade

Investors Underappreciate Occidental Petroleum's Competitive Advantage, Analyst Says In Upgrade
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Occidental Petroleum Corporation (NYSE: OXY) have hit an inflection point, with little downside ahead, according to PiperJaffray's energy division Simmons & Co. 

The Analyst

Analyst Guy Baber upgraded shares of Occidental from Neutral to Overweight and increased the price target from $77 to $86.

The Thesis

Occidental's cash flow profile is rapidly improving, with the path to cash flow neutrality largely being de-risked, analyst Baber said in a Sunday note. It's supported by a combination of commendable execution and material environmental tailwinds, the analyst said. 

Simmons & Co. forecast that Occidental will revert to an organic free cash flow surplus during the first quarter of 2018 for the first time since 2013.

Although investors understand the company's enviable Permian foothold, the analyst said they have less appreciation for the degree to which Occidental's size, scale, thoughtful approach to development and midstream integration have left it competitively advantaged relative to peers.

"Due to OXY's unique midstream footprint, any weakness in Permian oil differentials is actually a net positive — potentially to a material degree," Baber said. 

A combination of better execution and a mix shift to Occidental's most prolific development areas has helped Permian Resources' delivery improve rapidly on both an absolute and relative basis, the analyst said.

Simmons & Co.'s Q1 and 2018-2019 earnings per share estimates are above the consensus. Competitive advantages in the Permian should garner considerable mindshare through the Q1 reporting season, Baber said. 

The Price Action

Occidental shares have gained about 1.2 percent year-to-date.

The stock was up 1.5 percent at the time of publication Monday. 

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Posted-In: Guy Baber Simons & CompanyAnalyst Color Upgrades Price Target Analyst Ratings Best of Benzinga


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