Removing Occidental Petroleum from Americas Buy List - Goldman Sachs - October 22, 2007
What happened
We are removing Occidental Petroleum’s shares from the Americas Buy List and now rate it Neutral, as the shares are now near our revised $73 ($69 before) 12-month price target and we now see greater upside in other shares within the sector (see related note on Marathon Oil). Since being added to the Buy List on January 24, OXY shares are up 44.4% versus a 25.5% gain in the XOI (integrated oil index) and a 4.2% increase in the S&P 500. Over the last 12 months, OXY shares are +39.4% versus +9.8% for the S&P 500.
Current view
There is no change to our fundamentally favorable view of Occidental Petroleum’s asset base, management team, growth potential, profitability, or leverage to our bullish crude oil view. However, the shares have now significantly outperformed other integrated oils, and we see greater relative upside in the shares of other companies at this time, including Marathon Oil, which we are adding to the Americas Buy List (see related note published today). Occidental Petroleum is now nearing our revised $73 ($69 before), 12-month target price (based on asset value, P/E and cash flow valuation analyses; key risk is sustained lower commodity prices). While further upside could exist to the extent oil prices stay above our already well-above-consensus $80/bbl forecast for 2008 and $90/bbl for 2009, in the near-term we think the shares are appropriately valued relative to other companies in the sector. Note, our continued Attractive coverage view for the integrated oils suggests we have an overall favorable outlook for the sector relative to the broader market indices. Within the sector, we see greater upside for the shares of refining-leveraged companies like Marathon Oil, Valero Energy (Conviction Buy rated) and Sunoco (Buy rated). |
