Occidental Petroleum has underperformed in recent months, but is likely due for a bounce as investors reevaluate its fundamentals, according to Evercore ISI. The investment bank double upgraded the Houston-based oil and gas producer to outperform from underperform on Wednesday and raised its price target by 12%, to $65 from $58, implying 26% upside from Tuesday’s close. “After a prolonged stretch of underperformance versus both crude and the Large Cap [exploration and production] group, we think two developments now allow OXY to better reflect underlying commodity fundamentals: a materially de-levered balance sheet and a structural step-up in capital efficiency that together reshape the free-cash-flow profile and the path back to shareholder returns,” analyst Stephen Richardson wrote in a 12-page report to clients. Shares of Occidental are down almost 14% in the past three months, underperforming the wider market, as oil prices cooled and the Iran war wound down. In the same span, West Texas Intermediate futures have fallen roughly 21%. Also on Wednesday, President Trump declared an end to the ceasefire with Iran following a series of renewed U.S. military strikes against the Islamic Republic. OXY 3M mountain OXY is down nearly 14% over the past three months. But Occidental is poised to rise again as it overhauls its capital structure, according to Evercore ISI. Led by CEO Richard Jackson, Occidental has lowered its well costs and adopted a strategically shallower base decline to reduce its maintenance capital — an effort that “flattens and lifts free cash flow and supports a restart of buybacks” in 2028, Richardson added. Evercore ISI’s call goes against the Wall Street consensus, where 15 of 25 analysts covering Occidental Petroleum rate it no more than a hold, with nine buys and one underperform, LSEG data shows. Berkshire Hathaway owns 26.6% of Occidental common stock, and a notional $8.3 billion in preferred stock, according to FactSet data. “The Berkshire preferred, $8.3 billion of perpetual paper carrying an 8% coupon and restrictive redemption covenants, has been the single biggest structural drag on common-equity leverage to oil,” the Evercore analyst wrote. The earliest Occidental can redeem Berkshire’s preferred stock is August 2029.
Oil and gas stock will benefit from strategy shift, Evercore ISI says
