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In a note to clients Thursday, Truist Securities analyst Neal Dingmann said they believe there is a good chance billionaire investor Warren Buffett will buy the remaining 2/3 of Occidental (NYSE:OXY) that he and Berkshire Hathaway (NYSE:BRKa) do not own once the company becomes investment grade.
“Buffett disclosed the purchase of additional Occidental common shares last night resulting in the ownership of ~1/3 of the company (includes pref ownership) with the investor’s current energy company owning mostly IG companies,” said Dingmann. “In our opinion, OXY is quickly on its way to becoming IG as debt could soon go to $20B (currently $25B + $10B pfds) at which time shareholder returns, including $3B of share repurchases become more in focus.
The analyst believes the company is starting to better fit the Buffett mold.
“While Berkshire Hathaway Energy (Private) is approximately 1/3 coal/gas/wind with most future focus on wind/solar, we believe OXY could fit nicely within the portfolio,” the analyst added.
Truist said that while OXY is not yet investment grade, they believe it will achieve it this year “given the material continued FCF/debt repayment among other positive drivers.”
“Further, while 5% of OXY’s total business (judged by spending & FCF) is from Low Carbon Ventures, we anticipate this to change to potentially >10% in just a couple of years. As such, we believe OXY is ideal to be fully purchased by Buffett once IG status is met and more LCV business is generated.”
Occidental shares initially jumped Thursday but are down on the day at the time of writing.
