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Deutsche Bank Downgrades Occidental Petroleum (OXY) To 'Hold' On Thesis Drift

 December 03, 2012 02:27 PM

(By Balachander) Deutsche Bank (DB) downgraded its rating on shares of Occidental Petroleum Corp. (NYSE: OXY) to "Hold" from "Buy" on thesis drift.

"We pushed Oxy on the California story, then buyback," DB said. "Where previously the US was low growth/high free cashflow, the Middle East the growth driver, now the quest for organic growth in the US has seen capex soar while volumes are forecast to drop below the 5 percent target next year."

The bank wrote that disclosure has been relatively limited, making it difficult to understand either muted volumes & earnings growth or long term value.

"Over time, our thesis has drifted and our last hope, of a total change of strategy towards cash return to shareholders through a 50%+ increase in dividend, is not within current plans or outlook," DB said.

[Related -Occidental Petroleum Corporation (OXY) Dividend Stock Analysis]

"The story is not broken, but the premium story has been diluted, and although the multiple is reduced, the stock still does not screen as cheap," DB said.

The bank reduced price target on the stock to $80 from $95. 

DB said OXY's returns vs growth trajectory is shifting geographically and thematically with uncertain results. Delivery or disappointment would present both upside/downside risks.

Oxy engages in oil and natural gas exploration, production, transportation and marketing. OxyChem, a wholly owned subsidiary, manufactures and markets chlor-alkali products and vinyls.

Shares of OXY, which has been trading between $72.43 and $106.68, fell 1.30 percent to trade at $74.23 on Monday.

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