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Occidental shares have doubled this year to top the S&P 500,
Callaghan O’Hare/Bloomberg
Warren Buffett probably liked it
Occidental Petroleum
‘s
second quarter earnings report.
Occidental Petroleum (Ticker OXY), in which Buffett’s
Berkshire Hathaway
(BRK/A, BRK/B) is the largest shareholder to beat earnings forecasts, paying nearly $5 billion. USD debt and now intends to return more money to shareholders.
Occidental shares fell 1.3% to $64.20 after hours.
Until August 1 Occidental repurchased $1.1 billion At the end of June, Berkshire managed 181.7 million shares. “Occidental” shares accounted for 19.5 percent. shares. Occidental earned an adjusted $3.16 per share in the second quarter, topping consensus of $3.03 per share and up from 32 cents in the year-earlier period.
Berkshire’s stake is expected to reach 20% in the coming months as Occidental completes its $3 billion acquisition. USD redemption program. A 20% stake would allow Berkshire to include a proportionate share of Occidental’s profits in its income. That would boost Berkshire’s reported earnings by about $2 billion.
“Oxy is killing it because of the growing book value per share,” says Cole Smead, co-head of the Smead Value Fund, which owns West. “Where else can you find a company that grows book value so quickly.” He estimates that Occidental has increased its net value per share by about 11% during that period, while earning a higher return on equity.
Occidental’s strategy in recent quarters has been to leverage large free cash flows on debt, which matured on June 30. amounted to 21.7 billion USD, to pay and effectively transfer the assets to the shareholders who now own the majority of the business. Smead and others believe Berkshire CEO Buffett is happy with the strategy.
Berkshire owns nearly 20% of the common stock, has warrants to buy 83.9 million shares. Occidental stock for $59.62 and $10 billion. USD 8% preferred stock.
Looking ahead, Occidental will focus more on returning cash to shareholders than paying down debt. That could include a higher dividend, which is now low at 52 cents a year with a yield of less than 1%. Most energy companies return much more cash to owners than Occidental.
in 2023 Occidental may begin paying high-rate Berkshire preferred. Under the formula, a company must start paying the preference if it returns more than $4 per share to its common owners in a given year.
Investors will be interested to hear from Occidental CEO Vicki Hollub on the company’s conference call Wednesday morning to learn more about capital allocation, dividends, debt reduction, energy production and any hints about Berkshire’s intentions. Some believe Buffett may be looking to buy the rest of Occidental, having rapidly increased his Berkshire stake in recent months. Berkshire could not be reached for immediate comment.
Smead believes Occidental shares, which have doubled this year to top the S&P 500, still look attractive. It now trades at just six times earnings. “It’s obviously cheap compared to anything else you can do with capital.” He values it at about $100 a share and thinks Buffett can pay $90 a share for it.
Occidental is a major energy producer in the US, sourcing about 80% of its more than one million barrels per day of energy domestically. And Buffett likes American companies.
Email Andrew Bary at [email protected]