One of the most impressive movers in the energy sector of late has been Occidental Petroleum (NYSE:OXY). Today, OXY stock has surged by double digits once again, trading more than 13% higher at the time of writing. This move is a continuation of strong momentum over the past five trading days. For the five-day period, the stock is up more than 4o%.
Much of this momentum can be attributed to rising oil prices. As a key player in the exploration and development of oil and gas wells, energy prices matter. That’s because the amount of capital companies are willing to spend in developing their oil and gas assets changes when prices surge.
For Occidental, a company with a market capitalization of around $50 billion, a double-digit percentage move on a given day is a big deal. However, stringing multiple such days together is something not typically seen. As I recently pointed out, Occidental has used some of its excess cash flows to pay down its debt. A $2.5 billion pay-down of junk-rated debt is a big deal. Thus, there’s a lot to like about this company’s forward-looking fundamentals.
However, there’s also another catalyst with OXY stock that’s taking it on a nice ride today. Let’s dive into what investors are watching with Occidental Petroleum.
OXY Stock Soars on Key Upgrade
Today, Moody’s upgraded its outlook for Occidental and boosted the company’s bond rating. This rating change to Ba1, along with a positive outlook, has hiked the price of OXY stock significantly. That’s because a bond rating upgrade tends to lower a company’s cost of capital, increasing its valuation instantly.
A Ba1 rating is akin to a BB+ bond rating, which is still in the “junk” territory of the bond world. However, this rating improvement is a good thing, as is Moody’s updated outlook. Occidental is still a couple ratings below investment-grade. But, with the company’s debt repayment on the backdrop of higher energy prices, it’s possible it could achieve investment-grade status at some point.
Accordingly, investors and traders appear to be frontrunning this news today. The energy exploration and development space is a capital-intensive one. As such, Occidental may need to raise capital in the future. This rating improves the company’s future cost of borrowing while also improving its overall bond quality. That’s a good thing. Investors are right to take notice.
On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
