Stock Analysis on Net
Stock Analysis on Net

Occidental Petroleum Corp. (NYSE:OXY)

Present Value of Free Cash Flow to Equity (FCFE) 

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company asset base.

Intrinsic Stock Value (Valuation Summary)

Occidental Petroleum Corp., free cash flow to equity (FCFE) forecast

US$ in millions, except per share data

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Year Value FCFEt or Terminal value (TVt) Calculation Present value at 19.74%
01 FCFE0 5,970
1 FCFE1 5,547 = 5,970 × (1 + -7.08%) 4,633
2 FCFE2 5,338 = 5,547 × (1 + -3.78%) 3,723
3 FCFE3 5,312 = 5,338 × (1 + -0.48%) 3,094
4 FCFE4 5,462 = 5,312 × (1 + 2.83%) 2,657
5 FCFE5 5,797 = 5,462 × (1 + 6.13%) 2,355
5 Terminal value (TV5) 45,191 = 5,797 × (1 + 6.13%) ÷ (19.74% – 6.13%) 18,357
Intrinsic value of Occidental Petroleum Corp. common stock 34,818
 
Intrinsic value of Occidental Petroleum Corp. common stock (per share) $38.45
Current share price $51.39

Based on: 10-K (reporting date: 2023-12-31).

1 See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 4.68%
Expected rate of return on market portfolio2 E(RM) 13.78%
Systematic risk of Occidental Petroleum Corp. common stock βOXY 1.65
 
Required rate of return on Occidental Petroleum Corp. common stock3 rOXY 19.74%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rOXY = RF + βOXY [E(RM) – RF]
= 4.68% + 1.65 [13.78% – 4.68%]
= 19.74%

FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Occidental Petroleum Corp., PRAT model

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Average Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Selected Financial Data (US$ in millions)
Dividends on common stock 646 485 38 746 2,585
Dividends on preferred stock 736 800 800 400 318
Net income (loss) attributable to Occidental 4,696 13,304 2,322 (14,831) (667)
Net sales 28,257 36,634 25,956 17,809 20,393
Total assets 74,008 72,609 75,036 80,064 109,330
Stockholders’ equity 30,250 30,085 20,327 18,573 34,232
Financial Ratios
Retention rate1 0.84 0.96 0.98 — —
Profit margin2 14.01% 34.13% 5.86% -85.52% -4.83%
Asset turnover3 0.38 0.50 0.35 0.22 0.19
Financial leverage4 2.45 2.41 3.69 4.31 3.19
Averages
Retention rate 0.92
Profit margin -7.27%
Asset turnover 0.33
Financial leverage 3.21
 
FCFE growth rate (g)5 -7.08%

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

2023 Calculations

1 Retention rate = (Net income (loss) attributable to Occidental – Dividends on common stock – Dividends on preferred stock) ÷ (Net income (loss) attributable to Occidental – Dividends on preferred stock)
= (4,696 – 646 – 736) ÷ (4,696 – 736)
= 0.84

2 Profit margin = 100 × (Net income (loss) attributable to Occidental – Dividends on preferred stock) ÷ Net sales
= 100 × (4,696 – 736) ÷ 28,257
= 14.01%

3 Asset turnover = Net sales ÷ Total assets
= 28,257 ÷ 74,008
= 0.38

4 Financial leverage = Total assets ÷ Stockholders’ equity
= 74,008 ÷ 30,250
= 2.45

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.92 × -7.27% × 0.33 × 3.21
= -7.08%

FCFE growth rate (g) implied by single-stage model

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (46,540 × 19.74% – 5,970) ÷ (46,540 + 5,970)
= 6.13%

where:
Equity market value0 = current market value of Occidental Petroleum Corp. common stock (US$ in millions)
FCFE0 = the last year Occidental Petroleum Corp. free cash flow to equity (US$ in millions)
r = required rate of return on Occidental Petroleum Corp. common stock

FCFE growth rate (g) forecast

Occidental Petroleum Corp., H-model

Microsoft Excel
Year Value gt
1 g1 -7.08%
2 g2 -3.78%
3 g3 -0.48%
4 g4 2.83%
5 and thereafter g5 6.13%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= -7.08% + (6.13% – -7.08%) × (2 – 1) ÷ (5 – 1)
= -3.78%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= -7.08% + (6.13% – -7.08%) × (3 – 1) ÷ (5 – 1)
= -0.48%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= -7.08% + (6.13% – -7.08%) × (4 – 1) ÷ (5 – 1)
= 2.83%