The United States and the UK have recently announced a ban on Russian oil, ramping up sanctions on one of the largest oil exporters, which could lead to a surge in oil prices. In addition, the EU said it is ending its reliance on Russian gas. However, it has a limited supply, which should drive the natural gas prices higher. Moreover, oil and gas producers boosted their crude production due to high international prices, which should bode well for the energy industry. So, both Occidental Petroleum Corporation (OXY) and Continental Resources (CLR) could benefit.
OXY engages in the acquisition, exploration, and development of oil and gas properties in the United States, the Middle East, Africa, and Latin America. It operates through three segments: Oil and Gas; Chemical; and Midstream and Marketing. CLR is engaged in exploring, developing, and producing crude oil and natural gas. The company sells its crude oil and natural gas production to energy marketing, crude oil refining, and natural gas gathering and processing companies.
Year-to-Date (YTD) OXY has gained 97%, while CLR has returned 29%. Which of these two stocks is a better buy now?
Latest Developments
On February 3, 2022, OXY announced that its Board of Directors had declared a regular quarterly dividend of $0.13 per share on the common stock, payable on April 15, 2022, to stockholders of record as of the close of business on March 10, 2022. OXY’s President and CEO Vicki Hollub said, “As we continue to reduce our net debt and strengthen our balance sheet, our focus has expanded to returning additional capital to shareholders, beginning with the increase in our quarterly common dividend to 13 cents per share.”
On February 9, 2022, CLR announced that its Board of Directors had declared a quarterly dividend of $0.23 per share on the company's outstanding common stock, payable on March 4, 2022, to stockholders of record on February 22, 2022. Bill Berry, CLR’s CEO, said, “This dividend represents a $0.03, or 15%, increase to the company's $0.20 per share quarterly dividend paid in fourth quarter 2021 and equates to an approximately 1.7% annualized dividend yield.”
Recent Financial Results
OXY’s net sales increased 139.2% year-over-year to $8.01 billion for the fiscal fourth quarter ended December 31, 2021. The company’s adjusted earnings came in at $1.45 billion compared to a loss of $610 million in the prior-year quarter. Also, its adjusted EPS came in at $1.48 compared to a loss of $0.65 in the year-ago period.
CLR’s total revenues increased 130% year-over-year to $1.93 billion for the fiscal fourth quarter ended December 31, 2021. The company’s adjusted net income came in at $651.05 million, compared to a loss of $81.90 million in the prior-year quarter. Also, its adjusted EPS came in at $1.79, compared to a loss of $0.23 in the year-ago period.
Past and Expected Financial Performance
OXY’s revenue and EBITDA grew at CAGRs of 13.4% and 13%, respectively, over the past three years. Analysts expect OXY’s revenue to increase 22.8% for the quarter ending June 30, 2022, and 9.5% in fiscal 2022. The company’s EPS is expected to grow 300% for the quarter ending June 30, 2022, and 88.6% in fiscal 2022.
On the other hand, CLR’s revenue and EBITDA grew at CAGRs of 7.5% and 7.4%, respectively, over the past three years. The company’s revenue is expected to increase 76% for the quarter ending June 30, 2022, and 31.3% in fiscal 2022. Its EPS is expected to grow 118.7% for the quarter ending June 30, 2022, and 58.2% in fiscal 2022.
Profitability
OXY’s trailing-12-month revenue is 4.77 times what CLR generates. However, CLR is more profitable with a gross profit margin and net income margin of 88% and 30.51% compared to OXY’s 62.79% and 8.95%, respectively.
Furthermore, CLR’s ROE, ROA, and ROTC of 23.34%, 9.31%, and 11.61% are higher than OXY’s 14.34%, 3.51%, and 5%, respectively.
Valuation
In terms of forward non-GAAP PEG, CLR is currently trading at 3.01x, 19% higher than OXY’s 2.53x. Moreover, CLR’s forward EV/S ratio of 4.07x is 27.6% higher than OXY’s 3.19x.
So, OXY is relatively affordable here.
POWR Ratings
OXY has an overall rating of B, which equates to a Buy in our proprietary POWR Rating system. On the other hand, CLR has an overall rating of C, which translates to Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
OXY has a B grade for Growth, consistent with analysts’ expectations that its EPS will increase significantly in the upcoming quarter. On the other hand, CLR has a C grade for Growth, in sync with analysts’ expectations that its EPS will increase at a moderate rate in the near term.
Of the 86 stocks in the B-rated Energy - Oil & Gas industry, OXY is ranked #18. In contrast, CLR is ranked #39.
Beyond what I’ve stated above, we have also rated the stocks for Value, Momentum, Sentiment, Quality, and Stability. Click here to view all the OXY ratings. Also, get all the CLR ratings here.
The Winner
OXY and CLR should benefit since oil and gas prices are expected to skyrocket due to the increasing sanctions on Russia. However, it’s better to bet on OXY now because of its lower valuation.
Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the other top-rated stocks in the Energy - Oil & Gas industry here.
OXY shares were trading at $57.59 per share on Wednesday afternoon, up $2.99 (+5.48%). Year-to-date, OXY has gained 98.65%, versus a -9.97% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.
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