Morgan Stanley Names Occidental Petroleum A Top Pick For 2020

Following the acquisition of Anadarko Petroleum Corporation APC in August last year, shares of Occidental Petroleum Corporation OXY have declined 32%, underperforming peers.

Occidental Petroleum now has a peer-leading dividend yield of 7%, which is sufficiently covered by its strong and growing free cash flows, according to Morgan Stanley.

The Analyst

Morgan Stanley’s Devin McDermott upgraded Occidental Petroleum from Equal-Weight to Overweight, while raising the price target from $51 to $59.

The Thesis

The mega-merger with Anadarko Petroleum drove Occidental Petroleum’s share price to a 15-year low in December, McDermott said in the upgrade note.

Looking ahead, Occidental Petroleum seems poised to become “one of the more differentiated rate of change stories among large cap E&Ps (Exploration & Production) and global majors,” the analyst wrote.

He added that the company would achieve this by successfully executing operational improvements, realizing merger synergies of more than $2 billion and achieving total asset sales of over $15 billion for debt reduction.

“We see a clear path for the stock to re-rate higher through debt reduction, synergy realization & operational improvements,” McDermott said. He further mentioned that the company could maintain a best-in-class dividend yield, with “room for long-term growth under most scenarios.”

Price Action

Shares of Occidental Petroleum had risen 1.22% to $46.46 at time of publication.

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Posted In: Devin McDermottMorgan StanleyAnalyst ColorLong IdeasUpgradesPrice TargetAnalyst RatingsTrading Ideas