OXY reported strong 1q08 operating earnings of $2.20 per share, fully
diluted. These results were up an impressive 137% y/y, and beat consensus of
$1.95 per share. Oil and gas income was up 112% pretax and volumes increased 8%
y/y. Significantly, these profits were generated on an average NYMEX oil price
of $97 per barrel in 1q08. Even with today's decline, oil prices are up another
$15 per barrel versus the 1q08 average level. If the increase holds, OXY could
earn another $0.35 per share in 2q08. Interestingly, consensus for 2q08 is
currently at $1.86, which looks a tad low given that the company just earned
$2.20. OXY appears well on-track to now earn between $8.50 – $9.00 per share in
2008, which is above my prior single point estimate of $8.50. Clean EPS for 2007
were $5.25 per share.
(FCF) was $1.6 billion, or almost $2.00 per share. OXY stock is now trading at
just over 10x FCF, which appears cheap. OXY management emphasized that they
would not let cash build on the balance sheet and indicated that the board would
consider a dividend increase. OXY did buyback 6.3 million shares in 1q08 at a
cost of just over $400 million. Management stated that oil and gas volumes would
likely be higher in 2q08 versus the prior quarter and would be higher in 2009
versus this year's projected levels.
one of the cleanest ways to participate in a strong oil price environment.
Traders could consider going long OXY on this pull-back and go long 1.0 – 1.5
shares of DUG for every share of OXY as a hedge. The exact ratio of OXY to DUG
is driven by how tight one wants to construct the hedge.
