The coronavirus crisis and Anadarko’s acquisition have been weighing on Occidental Petroleum’s stock (NYSE: OXY) since the beginning of the year. With the stock down by a staggering 76%, is it the right time to take a closer look? The company’s cash position deteriorated through the first and second quarters as the declining benchmark prices dragged down operating margins. Occidental ended the June quarter with $1 billion of cash, but its short-term debt stood much higher at $2.4 billion. While long-term equity returns depend on the company’s strategy to manage its huge debt pile of $36 billion, Trefis believes that the ongoing asset sales are likely to provide an uptick to the stock and boost investor sentiments.
In order to address near-term debt maturities, the company has entered into purchase and sale agreements to divest Wyoming, Colorado, and Utah assets for $1.3 billion and its Colombia assets for $825 million. As the transactions are expected to close during the fourth quarter, the company will achieve its $2 billion asset divestiture target for 2020.
Occidental Petroleum’s revenues increased by 60% from $13.2 billion in 2017 to $21.2 billion in 2019, primarily driven by Anadarko’s acquisition and augmented by increased production & stable benchmark prices.
While the company has seen steady revenue growth over recent years, its P/S multiple has declined. The increased debt load and macroeconomic weakness have been key factors behind the falling stock price as interest expenses zoomed from $0.4 billion in 2018 to $1.06 billion in 2019 – taking the net income margin to negative territory. With a series of asset sales on the cards,