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A Citi analyst cut the rating on Occidental Petroleum (NYSE:OXY) to Neutral from Buy after a massive run-up in shares.
OXY shares are up +126% year-to-end compared to the SPDR® S&P Oil & Gas Exploration & Production ETF (NYSE:XOP) which is up almost 50%. Warren Buffett’s involvement has pushed OXY shares higher in recent months.
The analyst believes upside potential “appears modest,” hence the cut to Neutral while the price target goes to $67 from $65.
“OXY is now trading at a cash flow multiple of 5.7x on our 2023 forecast or 5.2x at strip, both within about a half of a turn versus EOG. FCF yield on market cap has compressed and is forecast at 11.4%/13.5% on Citi/Strip pricing in 2023, but FCF to EV is even more modest at 8.7%/10.3%. Thus while OXY should continue to witness debt to equity conversion, we don’t see sufficient upside to maintain our Buy rating,” the analyst further explained in a note.
At the same time, the analyst upgraded APA Corporation (NASDAQ:APA) to Buy from Neutral and raised the price target to $58 per share.
“APA offers an under-appreciated growth story combining upcoming exposure to the strength in global gas prices (starting in mid-2023) coupled with base volume growth, and potentially supplemented by a Suriname development longer term,” the analyst concluded.
OXY shares are still up over 2% in premarket trading Monday while APA stock price is trading almost 4% higher.
