On this piece, I evaluated two energy stocks, Occidental Petroleum (NYSE:OXY) and Pioneer Pure Assets (NYSE:PXD), utilizing TipRanks’ comparability software (see the picture beneath) to see which inventory is healthier. A more in-depth look suggests a bearish view for Occidental and a impartial view for Pioneer.
Occidental Petroleum and Pioneer Pure Assets each interact within the exploration and manufacturing of oil and pure fuel. Shares of Occidental Petroleum are up 12.6% year-to-date and 4% over the past 12 months, whereas Pioneer Natural Resources stock is up 20.5% year-to-date, hovering 31.9% over the past 12 months.
With such a dramatic distinction of their year-to-date performances, the numerous hole of their valuations is unsurprising. Nevertheless, Exxon Mobil’s (NYSE:XOM) pending acquisition of Pioneer units a ceiling on the corporate’s inventory value at round $253 a share, or roughly 2.3 instances Exxon’s value (extra on this beneath).
Occidental Petroleum (NYSE:OXY)
At a price-to-earnings (P/E) ratio of 16.6x, Occidental Petroleum is buying and selling at a premium to its trade’s P/E of 10.6x. Moreover, the dangers related to this firm can’t be ignored, so a bearish view appears acceptable, particularly contemplating its price-to-book (P/B) ratio of round 2.6x.
Occidental Petroleum has acquired numerous consideration since Warren Buffett’s Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) began loading up on shares, reaching a 28% stake within the firm as of the top of 2023. In his annual letter for 2023, Buffett stated he likes the corporate’s “huge oil and fuel holdings” within the U.S. and its “management in carbon-capture initiatives.”
Nevertheless, a more in-depth take a look at the corporate’s financials and steadiness sheet offers pause. Whereas it’s common for vitality corporations to hold vital debt, Occidental has a behavior of repeatedly taking up giant quantities of debt to make new acquisitions.
In 2023, the corporate’s whole income dropped 23% year-over-year to $28.3 billion, whereas its web debt remained at $19.5 billion, albeit down barely from $19.8 billion in 2022. Moreover, Occidental announced another acquisition in December: CrownRock — a Permian producer.
The corporate is once more using mostly debt to fund that $12 billion acquisition, additional growing its web debt. As some extent of comparability, vitality behemoth Exxon Mobil had solely $16.2 billion in web debt with $334.7 billion in income for 2023.
Then, in its fourth-quarter earnings launch, Occidental introduced that it was slicing manufacturing at two shale rigs within the Permian basin to scale back prices. In the meantime, its whole oil and fuel gross sales fell 13.9%, and its chemical gross sales fell 16.4% within the quarter.
When mixed, these simply aren’t good traits, they usually may sign hassle for Occidental down the street. In actual fact, short-sellers appear to agree, as brief curiosity within the firm has been hovering within the 5%-to-6% vary for a while, making it one of many most-shorted vitality shares within the S&P 500 (SPX).
What Is the Worth Goal for OXY Inventory?
Occidental Petroleum has a Reasonable Purchase consensus score based mostly on seven Buys, eight Holds, and nil Promote rankings assigned over the past three months. At $68.71, the average Occidental Petroleum Stock price target implies upside potential of two.8%.
Pioneer Pure Assets (NYSE:PXD)
At a P/E of 12.7x and an EV/EBITDA ratio of round 7x, Pioneer Pure Assets is buying and selling at a premium to its trade on each measures. Nevertheless, what’s most vital for the corporate proper now’s Exxon Mobil’s deliberate acquisition of the corporate. Thus, a impartial view appears acceptable.
The 2 corporations anticipate the acquisition to shut within the second quarter, so we’re mainly in a holding sample right here. In fact, regulators are scrutinizing the deal, however that’s to be anticipated. Notably, it’s an all-stock deal, with Pioneer shareholders receiving 2.3234 shares of Exxon for each Pioneer share they personal, making this a extremely engaging provide for present Pioneer shareholders.
Sadly, shareholders who don’t already personal Pioneer could have missed the boat on locking in a deal on this backdoor alternative into Exxon Mobil inventory. Nevertheless, the inventory could also be price monitoring simply in case a large disconnect between the valuations of Pioneer and Exxon shares develops. Moreover, any updates on the pending acquisition may set off a change within the share costs.
What Is the Worth Goal for PXD Inventory?
Pioneer Pure Assets has a Maintain consensus score based mostly on two Buys, 10 Holds, and nil Promote rankings assigned over the past three months. At $255.92, the average Pioneer Natural Resources stock price target implies draw back potential of 4.25%.
Conclusion: Bearish on OXY, Impartial on PXD
Occidental Petroleum has acquired numerous consideration attributable to Buffett’s sizable stake within the firm, however on the present share value and with the corporate’s newest gross sales numbers falling, there’s an excessive amount of danger to be bullish on the inventory.
In the meantime, I’m impartial on Pioneer Pure Assets as a result of Exxon acquisition. In actual fact, shareholders could also be higher off shopping for Exxon shares straight somewhat than shopping for Pioneer inventory at present costs, though this might change as the businesses’ inventory costs change or if there’s any information on the pending acquisition.
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