Occidental Petroleum (OXY) is losing ground on Thursday after famed investor Warren Buffett’s conglomerate Berkshire Hathaway (BRK.A) (BRK.B) confirmed plans of buying its petrochemical unit – OxyChem.
Berkshire has agreed to pay $9.7 billion in cash for OxyChem, which makes it the giant’s largest deal since 2022. The transaction adds to Berkshire’s existing 28.2% stake in OXY shares.
Despite today’s decline, Occidental Petroleum stock remains up some 25% versus its year-to-date low.
Why Is Occidental Petroleum Stock Sinking Today?
OXY stock’s decline reflects investor concerns about the divestiture of a profitable unit. OxyChem has been a steady cash generator, and selling it may raise questions about future earnings stability.
The transaction will enable a $6.5 billion debt repayment, which is positive, but some investors may have preferred a more aggressive capital return strategy.
The market may also be reacting to the lack of clarity around how Occidental Petroleum plans on replacing OxyChem’s contribution to EBITDA.
Simply put, short-term uncertainty around execution and balance sheet adjustment is weighing on sentiment even as the company positions itself for long-term transformation.
Should You Buy the Dip in OXY Shares on Thursday?
Occidental Petroleum shares’ pullback following the Berkshire news may be a buying opportunity for long-term investors.
Using the deal proceed to aggressively reduce debt and strengthen its balance sheet is, nonetheless, a meaningful positive that unlocks capacity for share buybacks. This will “allow shareholders to feel more comfortable,” the firm’s chief executive, Vicki Hollub, told investors in the press release.
Berkshire’s deepening involvement adds a layer of confidence, and OXY’s long-term strategy – focused on deleveraging and capital discipline – could drive meaningful upside.
Plus, Occidental Petroleum’s valuation looks more compelling after today’s dip as well, especially as the oil stock has recently formed a bullish golden cross. In short, for investors seeking exposure to energy with improving financials, OXY shares offer a strong risk-reward profile.
How Wall Street Recommends Playing Occidental Petroleum
Investors should also note that Wall Street firms currently see meaningful upside in OXY stock.
While the consensus rating on Occidental Petroleum shares remains at “Hold” only, the mean target of roughly $50 signals potential upside of more than 10% from here.
