Is Occidental Petroleum Corporation's (NYSE:OXY) Recent Stock Performance Influenced By Its Financials In Any Way?
Occidental Petroleum’s (NYSE:OXY) stock up by 7.4% over the past three months. As most would know, long-term fundamentals have a strong correlation with market price movements, so we decided to look at the company’s key financial indicators today to determine if they have any role to play in the recent price movement. In this article, we decided to focus on Occidental Petroleum’s ROE.
Return on equity or ROE is a key measure used to assess how efficiently a company’s management is utilizing the company’s capital. Simply put, it is used to assess the profitability of a company in relation to its equity capital.
The formula for ROE is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity
So, based on the above formula, the ROE for Occidental Petroleum is:
8.9% = US$3.1b ÷ US$35b (Based on the trailing twelve months to March 2025).
The ‘return’ is the yearly profit. That means that for every $1 worth of shareholders’ equity, the company generated $0.09 in profit.
See our latest analysis for Occidental Petroleum
We have already established that ROE serves as an efficient profit-generating gauge for a company’s future earnings. Depending on how much of these profits the company reinvests or “retains”, and how effectively it does so, we are then able to assess a company’s earnings growth potential. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.
On the face of it, Occidental Petroleum’s ROE is not much to talk about. We then compared the company’s ROE to the broader industry and were disappointed to see that the ROE is lower than the industry average of 13%. However, we we’re pleasantly surprised to see that Occidental Petroleum grew its net income at a significant rate of 48% in the last five years. So, there might be other aspects that are positively influencing the company’s earnings growth. Such as — high earnings retention or an efficient management in place.
Next, on comparing with the industry net income growth, we found that Occidental Petroleum’s growth is quite high when compared to the industry average growth of 37% in the same period, which is great to see.
Earnings growth is a huge factor in stock valuation. It’s important for an investor to know whether the market has priced in the company’s expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. If you’re wondering about Occidental Petroleum’s’s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
Occidental Petroleum’s ’ three-year median payout ratio is on the lower side at 13% implying that it is retaining a higher percentage (87%) of its profits. So it looks like Occidental Petroleum is reinvesting profits heavily to grow its business, which shows in its earnings growth.
Moreover, Occidental Petroleum is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years. Upon studying the latest analysts’ consensus data, we found that the company’s future payout ratio is expected to rise to 25% over the next three years. Regardless, the future ROE for Occidental Petroleum is speculated to rise to 11% despite the anticipated increase in the payout ratio. There could probably be other factors that could be driving the future growth in the ROE.
Overall, we feel that Occidental Petroleum certainly does have some positive factors to consider. Even in spite of the low rate of return, the company has posted impressive earnings growth as a result of reinvesting heavily into its business. With that said, the latest industry analyst forecasts reveal that the company’s earnings growth is expected to slow down. To know more about the company’s future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.