Stock Analysis on Net

Occidental Petroleum Corp. (NYSE:OXY)

Present Value of Free Cash Flow to the Firm (FCFF)

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 the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.


Intrinsic Stock Value (Valuation Summary)

Occidental Petroleum Corp., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 15.21%
01 FCFF0 6,912
1 FCFF1 5,455 = 6,912 × (1 + -21.07%) 4,735
2 FCFF2 4,680 = 5,455 × (1 + -14.22%) 3,526
3 FCFF3 4,335 = 4,680 × (1 + -7.37%) 2,835
4 FCFF4 4,312 = 4,335 × (1 + -0.52%) 2,448
5 FCFF5 4,586 = 4,312 × (1 + 6.33%) 2,260
5 Terminal value (TV5) 54,967 = 4,586 × (1 + 6.33%) ÷ (15.21%6.33%) 27,085
Intrinsic value of Occidental Petroleum Corp. capital 42,889
Less: Preferred stock, at $1.00 per share par value (book value) 8,287
Less: Long-term debt, including current maturities (fair value) 18,100
Intrinsic value of Occidental Petroleum Corp. common stock 16,502
 
Intrinsic value of Occidental Petroleum Corp. common stock (per share) $18.76
Current share price $64.20

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

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.


Weighted Average Cost of Capital (WACC)

Occidental Petroleum Corp., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 56,464 0.68 19.61%
Preferred stock, at $1.00 per share par value (book value) 8,287 0.10 8.00%
Long-term debt, including current maturities (fair value) 18,100 0.22 4.77% = 5.86% × (1 – 18.60%)

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

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 879,499,439 × $64.20
= $56,463,863,983.80

   Long-term debt, including current maturities (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (27.00% + 6.00% + 25.00% + 14.00% + 21.00%) ÷ 5
= 18.60%

WACC = 15.21%


FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Occidental Petroleum Corp., PRAT model

Microsoft Excel
Average Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Selected Financial Data (US$ in millions)
Interest and debt expense, net 945 1,030 1,614 1,424 1,066
Loss from discontinued operations, net of tax (468) (1,298) (15)
Net income (loss) attributable to Occidental 4,696 13,304 2,322 (14,831) (667)
 
Effective income tax rate (EITR)1 27.00% 6.00% 25.00% 14.00% 21.00%
 
Interest and debt expense, net, after tax2 690 968 1,211 1,225 842
Add: Dividends on preferred stock 736 800 800 400 318
Add: Dividends on common stock 646 485 38 746 2,585
Interest expense (after tax) and dividends 2,072 2,253 2,049 2,371 3,745
 
EBIT(1 – EITR)3 5,386 14,272 4,001 (12,308) 190
 
Current maturities of long-term debt 1,202 165 186 440 51
Long-term debt, net, excluding current maturities 18,536 19,670 29,431 35,745 38,537
Stockholders’ equity 30,250 30,085 20,327 18,573 34,232
Total capital 49,988 49,920 49,944 54,758 72,820
Financial Ratios
Retention rate (RR)4 0.62 0.84 0.49 -18.70
Return on invested capital (ROIC)5 10.77% 28.59% 8.01% -22.48% 0.26%
Averages
RR -4.19
ROIC 5.03%
 
FCFF growth rate (g)6 -21.07%

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).

1 See details »

2023 Calculations

2 Interest and debt expense, net, after tax = Interest and debt expense, net × (1 – EITR)
= 945 × (1 – 27.00%)
= 690

3 EBIT(1 – EITR) = Net income (loss) attributable to Occidental – Loss from discontinued operations, net of tax + Interest and debt expense, net, after tax
= 4,6960 + 690
= 5,386

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [5,3862,072] ÷ 5,386
= 0.62

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 5,386 ÷ 49,988
= 10.77%

6 g = RR × ROIC
= -4.19 × 5.03%
= -21.07%


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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (82,851 × 15.21%6,912) ÷ (82,851 + 6,912)
= 6.33%

where:

Total capital, fair value0 = current fair value of Occidental Petroleum Corp. debt and equity (US$ in millions)
FCFF0 = the last year Occidental Petroleum Corp. free cash flow to the firm (US$ in millions)
WACC = weighted average cost of Occidental Petroleum Corp. capital


FCFF growth rate (g) forecast

Occidental Petroleum Corp., H-model

Microsoft Excel
Year Value gt
1 g1 -21.07%
2 g2 -14.22%
3 g3 -7.37%
4 g4 -0.52%
5 and thereafter g5 6.33%

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 + (g5g1) × (2 – 1) ÷ (5 – 1)
= -21.07% + (6.33%-21.07%) × (2 – 1) ÷ (5 – 1)
= -14.22%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= -21.07% + (6.33%-21.07%) × (3 – 1) ÷ (5 – 1)
= -7.37%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= -21.07% + (6.33%-21.07%) × (4 – 1) ÷ (5 – 1)
= -0.52%