# Occidental Petroleum’s stock falls as UBS analyst turns bearish after record monthly gain

Byrne cut his rating to sell, after being at neutral since March 2018. He raised his stock price target to $12 from$10, but his new target is still 20.7% below current levels.

“The downgrade is based on valuation,” Byrne wrote in a note to clients. “Improving market confidence in the crude oil price trajectory, coupled with [Occidental Petroleum’s] progress on its debut maturities in 2021 and 2022 resulted in the recent move higher in the share price.”

After closing at a 20-year low of $8.88 on Oct. 28, the century-old company’s stock had shot up 72.6% in November, its biggest-ever one-month percentage gain. The stock had closed at a four-month high of $16.78 on Nov. 24 before the current losing streak began.

He said current share prices are discounting $53-to-$55 a barrel for West Texas Intermediate (WTI), which is “significantly above the forward curve.” As a result, he sees better risk-versus-reward investment scenarios in the sector.

Futures for WTI crude oil
CL00,
-1.65%
are down 1.7% on Tuesday at $44.59. See Futures Movers.

Byrne said he sees “more compelling” investment opportunities in shares of ConocoPhillips
COP,
-0.01%,
EOG Resources Inc.
EOG,
-0.25%
and Canadian Natural Resources Ltd.
CNQ,
+1.22%

CNQ,
+0.77%

Despite the record November rally, Occidental’s stock is still down 63.3% year to date, while the energy ETF has lost 38.3% and the S&P 500 index
SPX,
+1.13%
has gained 13.3%.

One issue investors have had with Occidental this year, besides the 27.0% tumbled in crude oil futures year to date, is the company ‘s high debt level following the $55 billion purchase of Anadarko Petroleum Corp., which was completed last year.

See related: Occidental Petroleum’s stock hits 10-year low, with ‘no easy way out’ of financial predicament.

The company said in its latest 10-Q filing with the Securities and Exchange Commission that it had long-term debt of $35.90 billion as of Sept. 30, compared with cash and cash equivalents of $1.90 billion and quarterly revenue of $3.28 billion.

In comparison, ConocoPhillips had $14.91 billion in long-term debt on Sept. 30, and cash and cash equivalents of $2.49 billion $4.39 billion in revenue.

UBS’s Bryne said although Occidental generates “solid” free cash flow (FCF), he expects all available FCF will be earmarked for debt reduction. As a result, he doesn’t believe shareholders are likely to see increased returns in the near term.

“In our view, [Occidental] will remain focused on reducing its absolute debt and leverage metrics,” Bryne wrote.