Ticker OXY Domonic Zarrini Presentation Outline Portfolio Information Stock Discovery Process SectorIndustry Overview amp Analysis Company Overview amp Analysis Company News Earnings Analysis ID: 353543
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Slide1
Occidental Petroleum Corp.
Ticker (OXY)
Domonic ZarriniSlide2
Presentation Outline
Portfolio Information
Stock Discovery Process
Sector/Industry Overview & Analysis
Company Overview & Analysis
Company News
Earnings Analysis
Valuation
Analysis
RecommendationSlide3
Current Portfolio HoldingsSlide4
Focusing on domestic Financial stocks
Industry Classifications:
Oil, Gas and Consumable fuels
(Primary) (12233)
Index Constituents:
S&P 500 Index (^SPX) (31)
Market Capitalization: (Latest) Ranks in the 1st-4th decile (13)Forward P/E- Capital IQ (NTM): Ranks in the 3rd-7th decile (5)Est. Annual EPS Growth – 1yr %: Ranks in the 2nd-4th decile (3)
Stock Discovery ProcessSlide5
Stock Discovery Process
Apache Corp. (APA)
Occidental Petroleum Corp. (OXY)
Exxon Mobile Corp (XOM)
ConocoPhillips
(COP)Chevron Corp (CVX)Slide6
Sector Overview
Largely mature industry
Great
competition and margin
pressures
Theoretically vast growth potential
Easy to value firmsHeavily interconnected industry groupsEnergy Sector rated to “OutPerform”!Slide7
Sector OverviewSlide8
S & P 500, Sector, Sub-sector
C
hartSlide9
Company overview
OXY is the largest producer of oil in Texas
OXY is the largest producer of natural gas in California
OXY is the number one company in Operating Income per BOE for 11 Consecutive years
Ranked 13
th
in 10 year EPS Growth (25.7% per year) – Top 500OXY is ranked number 1 in “fortune most admired” crude oil production companiesSlide10
Q3 2014 record domestic oil production of 282,000 barrels per day
Q3 2014 Permian Resources year over year quarterly oil growth in excess of 26%
Q3 2014 core income of $1.2 billion, or $1.58 per diluted share
Company overviewSlide11
OXY SWOT AnalysisSlide12
What Makes OXY Attractive?
Management plans to spend cash on buying back stock and increasing dividends 18%.
Pays dividend of 2.88%
5 year dividend growth rate of 17.2% increased consecutively for 11 years
Oxy will buy back 10% of outstanding shares while increasing dividend in anticipation of a spinoff into 3 independent companiesSlide13
2014 OXY announces spinoff of its California
Divison
, doing so will allow the company to focus on its core business.
In Regards to declining oil prices, OXY is still profitable with prices under $50
What Makes OXY Attractive?Slide14
Next Generation shale technology yet to be used in fields:
Automated Drilling
MicroDrilling
(allows faster deployment with smaller rig footprint)
Big Data Analytics (Maximizes yields by tapping into the surprising volume of data from complex shale operations)
NanoTechnology
(radically improving chemical formulations and safety)What Makes OXY Attractive?Slide15
What Makes OXY Attractive?
Raising the Dividend is an important goal for management. OXY’s Board agreed to raise the dividend 2013 from $2.16 to $2.56 18.5% increase
Feb 2014 board allowed another 12.50% increase in dividends of $0.72 a share
Competitors of OXY cant not compete to such increases (XOM, IMO, HESS)Slide16
What Makes OXY Attractive?
Capital Expenditure (CAPEX) biggest user of cash in energy companies.
FCF = OCF – CapEx remainder from which DIV can be paid
OXY
forsee’s
major jump in FCF in 2014 Slide17
3 Factors that will drive jump of CF
Improvement in drilling efficiencies
MicroDrilling
,
NanoTechnology
, Automated Drilling, Data Analytics
CapEx ReductionsProduction GrowthSlide18
Valuation – earnings & projected earnings
OXY
2012
2013
2014
2015
2016
EPS Normalized
$5.66
$7.32
$7.17
$7.56
$7.97
EPS Growth
29.33%
-2.05%
5.42%
5.42%
HES
2012
2013
2014
2015
2016
EPS Normalized
$5.11
$4.69
$3.45
$3.66
$3.88
EPS Growth
-8.22%
-35.94%
6.00%
6.00%
COG
2012
2013
2014
2015
2016
EPS Normalized
$ 0.71
$ 1.02
$ 1.22
$ 2.10
EPS Growth
43.66%
19.61%
72.13%Slide19
OXY
HES
COG
XOMSlide20
Dividend Growth Rate Forecast
Year
Value
g(T)
1
g1
9.22%
2
g2
10.18%
3
g3
11.14%
4
g4
12.09%
5 and there after
g5
13.05%Slide21
Intrinsic Value of OXY Share
Intrinsic Stock Valuation
Year
DIV
DPS Value
PV
16.32%
0
d0
2.56
1
d1
2.8
$2.41
2
d2
3.08
$2.28
3
d3
3.42
$2.17
4
d4
3.84
$2.10
5
d5
4.34
$2.04
5
TV(5)
150.04
$70.46
Intrinsic Value of OXY Share
$81.45
Current Stock Price
$85.23
Slide22
Capital Asset Pricing Method
CAPM
Rate of Return
RF
2.76%
E(RM)
E(RM)
13.49
Beta OXY
B(OXY)
1.5
Required Rate of Return
r(OXY)
20.22 Slide23
OXY Recommendation
Impressive Future Cash Flows
OXY 2014 appears to have growth drivers necessary to expand
Efficient E&P
Low cost producer allowing OXY to have lowest cost per barrel permitting highest profit per barrel
Room for growth!
Undervalued, market realizing only half its value, potentialRE BUY!!