We all know it’s always best to buy when stocks are inexpensive, but we must also observe the opposite and sell when stocks appear over-priced. Recently Occidental Petroleum Corporation(NYSE:OXY) has seen quite a run, moving about 25% in the last six months.
Chart Courtesy of The Motley Fool
However, upon looking at the fundamentals I am a bit skeptical. Comparing metrics to industry leaders Chevron Corporation (NYSE:CVX) and Exxon Mobil Corporation (NYSE:XOM), Occidental Petroleum Corporation (NYSE:OXY) looks to be overvalued in a number of ways.
| Valuation | Occidental | ExxonMobil | Chevron | Industry Average |
| P/E | 17.20 | 9.10 | 9.20 | 9.0 |
| Price/Sales | 3.16 | 0.85 | 1.03 | 0.61 |
| Price/Book | 1.84 | 2.39 | 1.68 | 1.46 |
| Yield | 2.70% | 2.80% | 3.30% | 5.20% |
| Return on Assets | 6.70% | 16.90% | 11.00% | 8.60% |
| Return on Investment | 9.20% | 32.90% | 17.10% | 15.10% |
Information from The Motley Fool
The P/E is almost twice that of Exxon Mobil Corporation (NYSE:XOM) and Chevron Corporation (NYSE:CVX). But there is absolutely no reason this stock deserves to trade at a premium. Occidental Petroleum Corporation (NYSE:OXY) has a RoA and RoI that is underperforming both Exxon and Chevron. Its price/sales of 3.16 is five times higher than the industry average of 0.61. The price/book of 1.84 isn’t much better at over 20% above the industry average of 1.46.
Finally, the yield is a less than impressive 2.70%, which, when the 5 year inflation average of 1.98% is taken into account, produces very little real return. With a 42% payout ratio, compared to an industry average 32%, there appears to be very little room for future dividend increases. With a big payout ratio and a low rate of return on equity the growth of this position should be called into question.
Results for the most recent quarter were disappointing for Occidental Petroleum Corporation (NYSE:OXY) with revenue decreasing from $6.27 billion in Q1 of 2012 to $5.87 billion in Q1 of 2013. Earnings also suffered declining from $1.92 to $1.68 over that same period. This could be attributed to the lower price for worldwide crude oil/per barrel received, decreasing from $107.98 to $98.07. With oil currently holding around the low to mid $90 range, and EIA Crude Oil Projections showing $93.17 for 2013 and 92.25 for 2014, look for revenue to continue decreasing.
The only two highlights that I could find in the recent quarterly reports were that operating costs had dropped 19% relative to 2012 and that midstream operations seemed to be gaining momentum. But these figures alone do not remotely begin to justify the current valuations for this stock.
