Investing in American shale oil companies isn’t easy. Sure, there can be quick gains from time to time. Yet, even a well-known oil company like Occidental Petroleum (NYSE:OXY) can fall on hard times. And those hard times can hit OXY stock investors right where it hurts — in their brokerage accounts.
Granted, one could argue that the problems befalling Occidental were incidental, if not accidental. Who could possibly have anticipated the onset of the novel coronavirus, or the price of WTI oil futures contracts reaching a mind-warping -$37 in April?
Even with the exogenous shocks in mind, investors have every right to expect Occidental to make the best of a tough situation. With the company’s quarterly fiscal data hot off the presses, should investors hold on to their few remaining threads of patience and confidence?
A Closer Look at OXY Stock
The long-term price action in OXY stock is emblematic of the oil patch’s story arc. Thus, 2000 through 2011 represented the boom years in which OXY shareholders enjoyed life-changing gains from $10 to $100 per share.
Those boom years were followed by a volatile period in which OXY stock struggled to maintain the $100 area for several years. Then, starting in 2014, came the bust years wherein OXY shares plummeted below $20.
The Covid-19 pandemic certainly didn’t help the bulls at all. During February and March of 2020, OXY stock dove from more than $40 to the $10 region. And so, the price had come full circle, back to where OXY was trading 20 years ago.
Even with OXY stock recovering the $16 level in August, the bulls clearly have a lot of work to do. The billion-dollar question, then, revolves around whether Occidental’s recently reported earnings data should inspire optimism or concern.
Expectations vs. Outcome
To be perfectly honest, both retail investors and the gurus on Wall Street probably weren’t expecting much from Occidental Petroleum for 2020’s second quarter. Without a doubt, they factored in the oil-price rout as well as the lack of energy demand in the wake of the coronavirus crisis.
Consequently, Wall Street expected Occidental to post a second-quarter earnings loss of $1.66 per share. On top of that, the analyst consensus called for quarterly revenues of merely $4.2 billion. That might sound like a large sum of capital, but it is nothing to write home about for an oil giant like Occidental.
The actual figures ended up being even worse than what was expected. For the second quarter, Occidental Petroleum posted an earnings loss of $1.76 per share. Compounding the disappointment were the absolutely dismal quarterly revenues of $2.93 billion.
Looking for a Bright Spot
Just in case all of that wasn’t sufficiently discouraging, OXY shareholders also learned that the company’s quarterly non-GAAP loss per share came to $1.76. That is 6 cents worse than what Wall Street had forecast.
But that’s nothing compared to Occidental’s horrendous quarterly GAAP earnings per share. That figure turned out to be a loss of $9.12, which missed Wall Street’s expectation by $3.81.
In less than an hour after these figures were released to the public, after-market traders gave OXY stock a 3% haircut. Perhaps they weren’t encouraged by the bright spot in the quarterly report, which was that Occidental produced 1,406 thousand barrels of oil equivalent per day (mboe/d), thereby outperforming the expected 1,381.1 mboe/d.
Robust oil production is all fine and good. What investors want and need, however, is positive cash flow. Or at the very least, they want to see losses slowing down. They’re simply not seeing that with the latest Occidental data.
As a result, the sentiment surrounding OXY stock will likely remain bearish unless a major catalyst comes along.
The Bottom Line
The American oil sector is trying its hardest to recuperate from decreased energy demand. Even with lowered expectations, though, Occidental Petroleum couldn’t deliver in the second quarter. OXY stock’s prospects remain muted while the broader sector attempts, with great difficulty, to find its footing.
David Moadel has provided compelling content — and crossed the occasional line — on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. As of this writing, David Moadel did not hold a position in any of the aforementioned securities.
