Occidental Petroleum Corporation

OXY Details

Low Cost structure with Improving Top Line: Occidental Petroleum Corporation (NYSE: OXY) is a sustainable energy company with operations in the United States, the Middle East, Africa and Latin America. As at 11 September 2020, the company had a market capitalization of ~$19.81 billion. 

Result Performance (Quarter Ended 30 June 2020): For the quarter ended 30 June 2020, the company reported combined production of 1,406 Mboed from continuing operations, higher than the midpoint of guidance by 36 Mboed. The net loss attributable to common stockholders stood at $8.4 billion in Q2 FY20, impacted by the impairment charges of approximately $5.2 billion on oil and gas continuing operations and $1.4 billion in discontinued operations for total impairment charges of $6.6 billion. Over the quarter, the company exceeded its cost savings targets while delivering operational excellence across its business.

Quarterly Dividend Update: The company recently announced a regular quarterly dividend of $0.01 per share on common stock. The dividend has a record date of 15 September 2020 and a payment date of 15 October 2020. 

Stock Recommendation: In the last one year, the stock of OXY has corrected by 77.48% and in the last one month alone it has declined by 31.5%. The stock is currently trading near to its 52-weeks low price of $9.00, offering a decent opportunity for accumulation. On a technical analysis front, the stock has a support level of ~$9.4 and a resistance level of ~$15.19. 

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Valuation (Source: Refinitiv (Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

We have valued the stock using an EV/Sales multiple based multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). For the purpose, we have taken peers such as ConocoPhillips (NYSE: COP), Hess Corp (NYSE: HES) and Marathon Oil Corp (NYSE: MRO). Considering the company’s current trading levels, its low-cost structure, and significant advancement in its plans to build the world’s largest-scale DAC facility, we give a “BUY” recommendation on the stock at the closing price of $10.22, up by 0.29% on 11 September 2020.

OXY Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Clean Energy Fuels Corp

CLNE Details 

Catering to a Large Addressable Market: Clean Energy Fuels Corp. (NYSE: CLNE) is a leading natural gas company with a network of approximately 540 fueling stations across the U.S. and Canada. CLNE is the only energy provider in the industry to offer CNG, LNG and RNG fueling. As at 11 September 2020, the company had a market capitalization of ~$498.71 million.

Result Performance (Quarter Ended 30 June 2020): For the quarter ended 30 June 2020, the company reported total revenue of $59.9 million, down by 17.2% on pcp. The net loss attributable to Clean Energy stood at $6.7 million in Q2 FY20, compared to $5.38 million in pcp. Over the quarter, the company delivered 89.5 million gallons, down by 10% on pcp, mainly due to a slowdown in activity as a result of COVID-19, which was primarily experienced in the airports (fleet services), public transit and government fleet customer markets. At the end of the June quarter, the company had cash and investment of $96 million and debt of $37 million.

June 2020 Quarter Results (Source: Company Reports)

Recent Update: New & Extended contracts of Over 20 million gallons of RNG: On 10 September 2020, the company announced new and extended contracts for over 20 million gallons of Redeem™ renewable natural gas (RNG). This is being done to accommodate the continued demand for the ultra-low carbon fuel across key business segments. 

Outlook: The company is of the view that the overall effects of the COVID-19 pandemic have been prolonged further than the earlier revised 2020 outlook as per which gradual recovery was going to be the third quarter of 2020 toward flat to low single digit percentage. For FY20, the company expects its GAAP Net loss to be around $11 million and its Adjusted EBITDA to be around 45,000. 

Stock Recommendation: In the last six months, the stock of CLNE has provided a return of 58.8%. On a technical analysis front, the stock has a support level of ~$2.46 and a resistance level of ~$2.7. Considering the company’s new and extended contracts of over 20 million gallons of RNG, its large addressable market, continued demand for the ultra-low carbon fuel across key business segments, we are of the view that the stock might witness further upside in the coming times. On a TTM basis, the stock has an EV/Sales multiple of 1.5x, lower than the industry median of 2.4x, demonstrating that the stock might be undervalued. Considering the aforesaid facts, we give a “Speculative Buy” recommendation on the stock at the closing price of $2.51 on 11 September 2020.

CLNE Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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