Occidental Petroleum Company (NYSE: OXY) shares are up 68% within the final month, and the stock’s massive run triggered a Wall Street downgrade on Tuesday.
The Analyst: UBS analyst Lloyd Byrne downgraded Occidental from Impartial to Promote and raised the price goal from $10 to $12.
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The Thesis: Within the downgrade be aware, Byrne stated the corporate’s debt considerations have been mitigated, however its current rally has carried the stock too far too quick primarily based on its valuation.
“We believe OXY is now discounting $53-55/bbl WTI going forward (significantly above the forward curve), and we see more compelling better risk/reward elsewhere in the group,” the analyst stated.
Occidental traders ought to think about rotating to grease stocks with extra compelling valuations, reminiscent of Canadian Pure Assets Ltd (NYSE: CNQ), ConocoPhillips (NASDAQ: COP) and EOG Assets Inc (NYSE: EOG), he stated.
Regardless of the current bounce in oil costs, Byrne stated he doesn’t anticipate Occidental being beneath 3x leverage till 2025. Occidental’s capital spending cuts have lowered the manufacturing outlook in 2021 and past, which UBS initiatives will weigh on long-term EBITDA and free cash circulation.
Within the meantime, Byrne stated he expects Occidental’s Colombia divestiture to shut as anticipated and stated traders ought to anticipate further asset gross sales within the near-term.
These offers may function bullish catalysts for the stock relying on their valuation, the analyst stated.
For now, nonetheless, he stated any incremental FCF that Occidental generates will go to debt discount.
Fintech Zoom’s Take: It’s not usually an analyst will downgrade a stock to Promote and concurrently elevate their price goal by 20%. But Occidental has rallied from beneath $9 in late October to above $15 in simply over a month’s time.
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|Nov 2020||Morgan Stanley||Maintains||Equal-Weight|
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