Is This Stock A Better Pick Over Occidental Petroleum?

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EOG: EOG Resources logo
EOG
EOG Resources

The shares of EOG Resources (NYSE: EOG) and Occidental Petroleum (NYSE: OXY) currently trade 60% and 45% above pre-Covid levels, respectively. Both companies are into independent exploration and production business with Occidental’s operations located in the United States, the Middle-East, and North Africa. As the finances of oil companies depend on benchmark prices, the recent surge has been assisted by the Russia-Ukraine war and rising transportation demand. Given EOG Resources’ lower long-term debt obligations and current dividend yield of 1.3%, Trefis believes that EOG stock is a better buy over OXY. We compare a slew of factors such as historical revenue growth, returns, and valuation multiple in an interactive dashboard analysis, EOG Resources vs. Occidental Petroleum: With Return Forecast Of 52%, EOG Resources Is A Better Bet

  1. Revenue Growth

EOG Resources’ growth was slightly better than Occidental Petroleum before the pandemic, with EOG’s revenues expanding at an average rate of 31% from $7.6 billion in 2016 to $17.3 billion in 2019. Occidental’s revenues observed a growth of 27% p.a. from $10 billion in 2016 to $21 billion in 2019. In 2020, EOG Resources and Occidental Petroleum reported a 35% and 25% topline contraction, respectively. With rising production numbers and benchmark oil prices, both companies reported strong growth figures in 2021.

  • EOG Resources’ three operating segments, United States, Trinidad, and Other International contribute 97%, 2%, and 1% of total revenues, respectively. The company is primarily involved in hydrocarbon exploration and production with 98% of the $38 billion asset base located in the U.S.
  • Occidental Petroleum’s three operating segments, Oil & Gas, Chemical, and Midstream & marketing contribute 63%, 18%, and 19% of total revenues, respectively. The company’s Oil & Gas segment is the key earnings contributor with a 75% share of the total asset base.
  • After observing revenue declines in 2020, Occidental Petroleum reported a 25% contraction of the total asset base compared to just 5% contraction reported by EOG Resources.

  1. Returns (Profits)
Relevant Articles
  1. What’s Next For EOG Resources Stock?
  2. Up 7% This Year, Will EOG’s Gains Continue Following Q1 Results?
  3. Down 13% Since 2023, Will EOG Stock Recoup These Losses After Q4 Results?
  4. What To Expect From EOG’s Q3 After Stock Down 4% This Year?
  5. What To Watch For In EOG’s Stock Past Q2?
  6. What’s Next For EOG Stock?

Here we compare the cash generation capabilities of both companies as they return a sizable share of their operating cash flow to shareholders & creditors. In 2021, EOG Resources generated $8.8 billion of operating cash from $18.6 billion in total revenues – implying an operating cash flow margin of 47%. Whereas, Occidental Petroleum reported $26 billion in total revenues and $10.4 billion of operating cash flow resulting in a margin of 40%.

  • EOG Resources’ cash generation capabilities are slightly better than Occidental Petroleum largely due to lower operational costs.
  • In 2021, EOG invested $3.8 billion in property, plant & equipment and returned $2.6 billion to shareholders in dividends. Thus, dividend payouts accounted for 30% of the total cash from operations. In recent years, the company has been balancing its new property investments and shareholders returns.
  • In 2021, Occidental Petroleum utilized $1.2 billion in investing activities and returned $6.8 billion of long-term debt to creditors.
  • Thus, Occidental Petroleum has been focusing on improving the strength of its balance sheet as compared to a favorable shareholder return policy adopted by EOG Resources.
  1. Risk

In 2021, EOG Resources and Occidental Petroleum reported 13% and 39% of debt-to-asset ratio, respectively.

  • Higher financial leverage coupled with continued revenue growth is a boon for generating surplus equity returns. However, interest expenses weigh on finances as revenues decline – limiting dividend payouts and capital expenses.
  • While high benchmark prices are a boon for Occidental Petroleum stock, but the company’s focus to strengthen the balance sheet by utilizing excess operating cash to repay debt is unlikely to benefit investors in the near-term.
  • Moreover, broader market expectations of a decline in oil prices during the latter half of the year coupled with a huge debt load poses a downside risk to Occidental stock.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

Returns Apr 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
EOG Return 3% 38% 21%
OXY Return 8% 112% -14%
S&P 500 Return -2% -6% 99%
Trefis Multi-Strategy Portfolio -2% -9% 257%

[1] Month-to-date and year-to-date as of 4/21/2022
[2] Cumulative total returns since the end of 2016

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