Intrinsic value of Occidental Petroleum - OXY

Previous Close

$59.70

  Intrinsic Value

$7.02

stock screener

  Rating & Target

str. sell

-88%

  Value-price divergence*

-62%

Previous close

$59.70

 
Intrinsic value

$7.02

 
Up/down potential

-88%

 
Rating

str. sell

 
Value-price divergence*

-62%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of OXY stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 45.7

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -19.07
  39.00
  35.60
  32.54
  29.79
  27.31
  25.08
  23.07
  21.26
  19.64
  18.17
  16.86
  15.67
  14.60
  13.64
  12.78
  12.00
  11.30
  10.67
  10.10
  9.59
  9.13
  8.72
  8.35
  8.01
  7.71
  7.44
  7.20
  6.98
  6.78
  6.60
Revenue, $m
  10,196
  14,172
  19,218
  25,471
  33,058
  42,086
  52,639
  64,783
  78,557
  93,982
  111,061
  129,780
  150,116
  172,037
  195,507
  220,489
  246,948
  274,854
  304,181
  334,913
  367,041
  400,565
  435,495
  471,852
  509,663
  548,968
  589,816
  632,264
  676,378
  722,232
  769,910
Variable operating expenses, $m
 
  25,014
  33,919
  44,957
  58,348
  74,281
  92,908
  114,341
  138,652
  165,878
  196,022
  229,062
  264,954
  303,645
  345,069
  389,162
  435,863
  485,117
  536,880
  591,122
  647,828
  706,998
  768,649
  832,818
  899,555
  968,929
  1,041,026
  1,115,946
  1,193,807
  1,274,739
  1,358,891
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  11,951
  25,014
  33,919
  44,957
  58,348
  74,281
  92,908
  114,341
  138,652
  165,878
  196,022
  229,062
  264,954
  303,645
  345,069
  389,162
  435,863
  485,117
  536,880
  591,122
  647,828
  706,998
  768,649
  832,818
  899,555
  968,929
  1,041,026
  1,115,946
  1,193,807
  1,274,739
  1,358,891
Operating income, $m
  -1,755
  -10,842
  -14,702
  -19,486
  -25,290
  -32,195
  -40,269
  -49,559
  -60,096
  -71,896
  -84,961
  -99,282
  -114,839
  -131,608
  -149,562
  -168,674
  -188,915
  -210,263
  -232,699
  -256,209
  -280,786
  -306,432
  -333,154
  -360,966
  -389,892
  -419,961
  -451,210
  -483,682
  -517,429
  -552,507
  -588,981
EBITDA, $m
  2,513
  -6,396
  -8,673
  -11,495
  -14,919
  -18,993
  -23,756
  -29,236
  -35,453
  -42,414
  -50,122
  -58,570
  -67,747
  -77,640
  -88,232
  -99,506
  -111,448
  -124,041
  -137,277
  -151,146
  -165,646
  -180,775
  -196,539
  -212,947
  -230,011
  -247,749
  -266,184
  -285,341
  -305,249
  -325,943
  -347,460
Interest expense (income), $m
  312
  344
  641
  1,016
  1,481
  2,045
  2,717
  3,501
  4,404
  5,429
  6,575
  7,845
  9,237
  10,749
  12,379
  14,125
  15,982
  17,950
  20,025
  22,205
  24,491
  26,879
  29,372
  31,970
  34,673
  37,484
  40,407
  43,444
  46,601
  49,881
  53,291
Earnings before tax, $m
  -1,845
  -11,186
  -15,343
  -20,502
  -26,771
  -34,241
  -42,986
  -53,060
  -64,500
  -77,325
  -91,537
  -107,127
  -124,076
  -142,358
  -161,942
  -182,798
  -204,897
  -228,213
  -252,723
  -278,414
  -305,277
  -333,312
  -362,526
  -392,936
  -424,565
  -457,445
  -491,617
  -527,126
  -564,030
  -602,388
  -642,271
Tax expense, $m
  -662
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  -574
  -11,186
  -15,343
  -20,502
  -26,771
  -34,241
  -42,986
  -53,060
  -64,500
  -77,325
  -91,537
  -107,127
  -124,076
  -142,358
  -161,942
  -182,798
  -204,897
  -228,213
  -252,723
  -278,414
  -305,277
  -333,312
  -362,526
  -392,936
  -424,565
  -457,445
  -491,617
  -527,126
  -564,030
  -602,388
  -642,271

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  2,233
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  43,109
  56,917
  77,180
  102,294
  132,764
  169,018
  211,402
  260,171
  315,488
  377,437
  446,026
  521,204
  602,875
  690,910
  785,167
  885,496
  991,758
  1,103,830
  1,221,611
  1,345,033
  1,474,061
  1,608,696
  1,748,978
  1,894,986
  2,046,839
  2,204,692
  2,368,740
  2,539,213
  2,716,376
  2,900,530
  3,092,007
Adjusted assets (=assets-cash), $m
  40,876
  56,917
  77,180
  102,294
  132,764
  169,018
  211,402
  260,171
  315,488
  377,437
  446,026
  521,204
  602,875
  690,910
  785,167
  885,496
  991,758
  1,103,830
  1,221,611
  1,345,033
  1,474,061
  1,608,696
  1,748,978
  1,894,986
  2,046,839
  2,204,692
  2,368,740
  2,539,213
  2,716,376
  2,900,530
  3,092,007
Revenue / Adjusted assets
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
Average production assets, $m
  31,988
  44,459
  60,286
  79,903
  103,704
  132,022
  165,129
  203,223
  246,432
  294,821
  348,397
  407,120
  470,913
  539,679
  613,304
  691,673
  774,675
  862,216
  954,216
  1,050,623
  1,151,408
  1,256,573
  1,366,149
  1,480,198
  1,598,813
  1,722,114
  1,850,254
  1,983,412
  2,121,797
  2,265,642
  2,415,207
Working capital, $m
  2,066
  -227
  -307
  -408
  -529
  -673
  -842
  -1,037
  -1,257
  -1,504
  -1,777
  -2,076
  -2,402
  -2,753
  -3,128
  -3,528
  -3,951
  -4,398
  -4,867
  -5,359
  -5,873
  -6,409
  -6,968
  -7,550
  -8,155
  -8,783
  -9,437
  -10,116
  -10,822
  -11,556
  -12,319
Total debt, $m
  9,819
  18,316
  29,035
  42,321
  58,439
  77,618
  100,039
  125,837
  155,100
  187,871
  224,155
  263,924
  307,128
  353,699
  403,560
  456,634
  512,847
  572,133
  634,439
  699,729
  767,985
  839,207
  913,416
  990,655
  1,070,985
  1,154,489
  1,241,271
  1,331,451
  1,425,170
  1,522,587
  1,623,879
Total liabilities, $m
  21,612
  30,109
  40,828
  54,114
  70,232
  89,411
  111,832
  137,630
  166,893
  199,664
  235,948
  275,717
  318,921
  365,492
  415,353
  468,427
  524,640
  583,926
  646,232
  711,522
  779,778
  851,000
  925,209
  1,002,448
  1,082,778
  1,166,282
  1,253,064
  1,343,244
  1,436,963
  1,534,380
  1,635,672
Total equity, $m
  21,497
  26,808
  36,352
  48,181
  62,532
  79,608
  99,570
  122,540
  148,595
  177,773
  210,078
  245,487
  283,954
  325,419
  369,814
  417,069
  467,118
  519,904
  575,379
  633,511
  694,283
  757,696
  823,769
  892,539
  964,061
  1,038,410
  1,115,677
  1,195,969
  1,279,413
  1,366,150
  1,456,335
Total liabilities and equity, $m
  43,109
  56,917
  77,180
  102,295
  132,764
  169,019
  211,402
  260,170
  315,488
  377,437
  446,026
  521,204
  602,875
  690,911
  785,167
  885,496
  991,758
  1,103,830
  1,221,611
  1,345,033
  1,474,061
  1,608,696
  1,748,978
  1,894,987
  2,046,839
  2,204,692
  2,368,741
  2,539,213
  2,716,376
  2,900,530
  3,092,007
Debt-to-equity ratio
  0.457
  0.680
  0.800
  0.880
  0.930
  0.980
  1.000
  1.030
  1.040
  1.060
  1.070
  1.080
  1.080
  1.090
  1.090
  1.090
  1.100
  1.100
  1.100
  1.100
  1.110
  1.110
  1.110
  1.110
  1.110
  1.110
  1.110
  1.110
  1.110
  1.110
  1.120
Adjusted equity ratio
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -574
  -11,186
  -15,343
  -20,502
  -26,771
  -34,241
  -42,986
  -53,060
  -64,500
  -77,325
  -91,537
  -107,127
  -124,076
  -142,358
  -161,942
  -182,798
  -204,897
  -228,213
  -252,723
  -278,414
  -305,277
  -333,312
  -362,526
  -392,936
  -424,565
  -457,445
  -491,617
  -527,126
  -564,030
  -602,388
  -642,271
Depreciation, amort., depletion, $m
  4,268
  4,446
  6,029
  7,990
  10,370
  13,202
  16,513
  20,322
  24,643
  29,482
  34,840
  40,712
  47,091
  53,968
  61,330
  69,167
  77,468
  86,222
  95,422
  105,062
  115,141
  125,657
  136,615
  148,020
  159,881
  172,211
  185,025
  198,341
  212,180
  226,564
  241,521
Funds from operations, $m
  2,533
  -6,740
  -9,314
  -12,511
  -16,400
  -21,039
  -26,473
  -32,738
  -39,857
  -47,843
  -56,697
  -66,415
  -76,985
  -88,390
  -100,612
  -113,631
  -127,430
  -141,991
  -157,302
  -173,352
  -190,136
  -207,655
  -225,911
  -244,916
  -264,684
  -285,234
  -306,591
  -328,785
  -351,850
  -375,824
  -400,751
Change in working capital, $m
  -850
  -64
  -81
  -100
  -121
  -144
  -169
  -194
  -220
  -247
  -273
  -300
  -325
  -351
  -376
  -400
  -423
  -446
  -469
  -492
  -514
  -536
  -559
  -582
  -605
  -629
  -654
  -679
  -706
  -734
  -763
Cash from operations, $m
  3,383
  -6,676
  -9,233
  -12,411
  -16,279
  -20,894
  -26,304
  -32,543
  -39,637
  -47,596
  -56,424
  -66,116
  -76,659
  -88,039
  -100,236
  -113,231
  -127,006
  -141,545
  -156,832
  -172,860
  -189,622
  -207,118
  -225,352
  -244,334
  -264,079
  -284,605
  -305,938
  -328,106
  -351,144
  -375,091
  -399,988
Maintenance CAPEX, $m
  0
  -3,199
  -4,446
  -6,029
  -7,990
  -10,370
  -13,202
  -16,513
  -20,322
  -24,643
  -29,482
  -34,840
  -40,712
  -47,091
  -53,968
  -61,330
  -69,167
  -77,468
  -86,222
  -95,422
  -105,062
  -115,141
  -125,657
  -136,615
  -148,020
  -159,881
  -172,211
  -185,025
  -198,341
  -212,180
  -226,564
New CAPEX, $m
  -4,761
  -12,471
  -15,827
  -19,617
  -23,800
  -28,319
  -33,107
  -38,094
  -43,209
  -48,389
  -53,576
  -58,723
  -63,794
  -68,766
  -73,625
  -78,369
  -83,003
  -87,540
  -92,001
  -96,407
  -100,785
  -105,165
  -109,576
  -114,049
  -118,614
  -123,301
  -128,140
  -133,158
  -138,384
  -143,845
  -149,565
Cash from investing activities, $m
  -4,742
  -15,670
  -20,273
  -25,646
  -31,790
  -38,689
  -46,309
  -54,607
  -63,531
  -73,032
  -83,058
  -93,563
  -104,506
  -115,857
  -127,593
  -139,699
  -152,170
  -165,008
  -178,223
  -191,829
  -205,847
  -220,306
  -235,233
  -250,664
  -266,634
  -283,182
  -300,351
  -318,183
  -336,725
  -356,025
  -376,129
Free cash flow, $m
  -1,359
  -22,346
  -29,507
  -38,057
  -48,069
  -59,583
  -72,613
  -87,150
  -103,168
  -120,628
  -139,482
  -159,678
  -181,165
  -203,896
  -227,829
  -252,930
  -279,176
  -306,553
  -335,054
  -364,688
  -395,470
  -427,424
  -460,586
  -494,999
  -530,713
  -567,788
  -606,289
  -646,290
  -687,870
  -731,115
  -776,117
Issuance/(repayment) of debt, $m
  1,493
  8,497
  10,719
  13,286
  16,118
  19,179
  22,421
  25,798
  29,263
  32,771
  36,284
  39,769
  43,204
  46,571
  49,862
  53,074
  56,213
  59,286
  62,306
  65,290
  68,256
  71,222
  74,209
  77,239
  80,330
  83,504
  86,781
  90,180
  93,719
  97,417
  101,291
Issuance/(repurchase) of shares, $m
  14
  18,730
  24,886
  32,331
  41,122
  51,317
  62,949
  76,030
  90,555
  106,503
  123,842
  142,536
  162,543
  183,822
  206,337
  230,054
  254,947
  280,998
  308,198
  336,546
  366,049
  396,725
  428,599
  461,706
  496,088
  531,794
  568,883
  607,419
  647,474
  689,125
  732,457
Cash from financing (excl. dividends), $m  
  2,700
  27,227
  35,605
  45,617
  57,240
  70,496
  85,370
  101,828
  119,818
  139,274
  160,126
  182,305
  205,747
  230,393
  256,199
  283,128
  311,160
  340,284
  370,504
  401,836
  434,305
  467,947
  502,808
  538,945
  576,418
  615,298
  655,664
  697,599
  741,193
  786,542
  833,748
Total cash flow (excl. dividends), $m
  1,341
  4,881
  6,099
  7,559
  9,171
  10,912
  12,757
  14,678
  16,650
  18,646
  20,644
  22,627
  24,581
  26,497
  28,369
  30,197
  31,983
  33,731
  35,450
  37,148
  38,835
  40,523
  42,222
  43,946
  45,705
  47,511
  49,376
  51,309
  53,323
  55,427
  57,631
Retained Cash Flow (-), $m
  2,853
  -18,730
  -24,886
  -32,331
  -41,122
  -51,317
  -62,949
  -76,030
  -90,555
  -106,503
  -123,842
  -142,536
  -162,543
  -183,822
  -206,337
  -230,054
  -254,947
  -280,998
  -308,198
  -336,546
  -366,049
  -396,725
  -428,599
  -461,706
  -496,088
  -531,794
  -568,883
  -607,419
  -647,474
  -689,125
  -732,457
Prev. year cash balance distribution, $m
 
  2,233
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  -11,615
  -18,788
  -24,772
  -31,951
  -40,405
  -50,192
  -61,351
  -73,905
  -87,857
  -103,198
  -119,909
  -137,961
  -157,325
  -177,967
  -199,856
  -222,964
  -247,267
  -272,748
  -299,398
  -327,214
  -356,202
  -386,377
  -417,760
  -450,383
  -484,283
  -519,508
  -556,110
  -594,151
  -633,698
  -674,826
Discount rate, %
 
  4.50
  4.73
  4.96
  5.21
  5.47
  5.74
  6.03
  6.33
  6.65
  6.98
  7.33
  7.70
  8.08
  8.49
  8.91
  9.36
  9.82
  10.31
  10.83
  11.37
  11.94
  12.54
  13.16
  13.82
  14.51
  15.24
  16.00
  16.80
  17.64
  18.52
PV of cash for distribution, $m
 
  -11,115
  -17,131
  -21,422
  -26,078
  -30,959
  -35,902
  -40,720
  -45,224
  -49,225
  -52,554
  -55,070
  -56,668
  -57,285
  -56,904
  -55,555
  -53,310
  -50,279
  -46,602
  -42,440
  -37,964
  -33,344
  -28,743
  -24,303
  -20,145
  -16,358
  -13,003
  -10,110
  -7,681
  -5,698
  -4,122
Current shareholders' claim on cash, %
  100
  68.6
  47.8
  33.7
  24.0
  17.3
  12.6
  9.3
  6.9
  5.2
  3.9
  2.9
  2.2
  1.7
  1.3
  1.0
  0.8
  0.6
  0.5
  0.4
  0.3
  0.2
  0.2
  0.1
  0.1
  0.1
  0.1
  0.1
  0.0
  0.0
  0.0

Occidental Petroleum Corporation engages in the acquisition, exploration, and development of oil and gas properties in the United States and internationally. The company operates in three segments: Oil and Gas, Chemical, and Midstream and Marketing. The Oil and Gas segment explores for, develops, and produces oil and condensate, natural gas liquids (NGLs), and natural gas. The Chemical segment manufactures and markets basic chemicals, including chlorine, caustic soda, chlorinated organics, potassium chemicals, ethylene dichloride, chlorinated isocyanurates, sodium silicates, and calcium chloride; vinyls comprising vinyl chloride monomer and polyvinyl chloride; and other chemicals, such as resorcinol. The Midstream and Marketing segment gathers, processes, transports, stores, purchases, and markets oil, condensate, NGLs, natural gas, carbon dioxide, and power. This segment also trades around its assets consisting of transportation and storage capacity, as well as oil, NGLs, gas, and other commodities. Occidental Petroleum Corporation was founded in 1920 and is headquartered in Houston, Texas.

FINANCIAL RATIOS  of  Occidental Petroleum (OXY)

Valuation Ratios
P/E Ratio -79.5
Price to Sales 4.5
Price to Book 2.1
Price to Tangible Book
Price to Cash Flow 13.5
Price to Free Cash Flow -33.1
Growth Rates
Sales Growth Rate -19.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -11.5%
Cap. Spend. - 3 Yr. Gr. Rate -9.8%
Financial Strength
Quick Ratio NaN
Current Ratio 0.2
LT Debt to Equity 45.7%
Total Debt to Equity 45.7%
Interest Coverage -5
Management Effectiveness
Return On Assets -0.9%
Ret/ On Assets - 3 Yr. Avg. -5.1%
Return On Total Capital -1.8%
Ret/ On T. Cap. - 3 Yr. Avg. -7.2%
Return On Equity -2.5%
Return On Equity - 3 Yr. Avg. -9.1%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 49.1%
Gross Margin - 3 Yr. Avg. 56%
EBITDA Margin 26.8%
EBITDA Margin - 3 Yr. Avg. 5.8%
Operating Margin -17.2%
Oper. Margin - 3 Yr. Avg. -33.3%
Pre-Tax Margin -18.1%
Pre-Tax Margin - 3 Yr. Avg. -29.6%
Net Profit Margin -5.6%
Net Profit Margin - 3 Yr. Avg. -21.5%
Effective Tax Rate 35.9%
Eff/ Tax Rate - 3 Yr. Avg. 62.4%
Payout Ratio -402.3%

OXY stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the OXY stock intrinsic value calculation we used $10196 million for the last fiscal year's total revenue generated by Occidental Petroleum. The default revenue input number comes from 2016 income statement of Occidental Petroleum. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our OXY stock valuation model: a) initial revenue growth rate of 39% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.5%, whose default value for OXY is calculated based on our internal credit rating of Occidental Petroleum, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Occidental Petroleum.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of OXY stock the variable cost ratio is equal to 176.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for OXY stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Occidental Petroleum.

Corporate tax rate of 27% is the nominal tax rate for Occidental Petroleum. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the OXY stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for OXY are equal to 313.7%.

Life of production assets of 10 years is the average useful life of capital assets used in Occidental Petroleum operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for OXY is equal to -1.6%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $21497 million for Occidental Petroleum - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 765.248 million for Occidental Petroleum is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Occidental Petroleum at the current share price and the inputted number of shares is $45.7 billion.

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COMPANY NEWS

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▶ Occidental Petroleum raises dividend by a penny   [Jul-13-17 02:12PM  MarketWatch]
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▶ Understanding Marathon Oils Production Mix   [Jul-03-17 10:39AM  Market Realist]
▶ Seeking Value in the Oil Industry: Occidental Petroleum   [Jun-29-17 11:14AM  GuruFocus.com]
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▶ How Oil-Weighted Stocks Performed Last Week   [08:29AM  Market Realist]
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▶ Is $40 Oil On The Horizon?   [03:00PM  Oilprice.com]
▶ Why Occidental Petroleum Could Tumble 20%   [02:26PM  Barrons.com]
▶ Oils Fall Hurt Oil-Weighted Stocks Returns   [01:25PM  Market Realist]
▶ Oxy makes two $600M deals to sell, buy Permian assets   [Jun-19-17 06:28PM  American City Business Journals]
▶ Encana Turns 1Q16 Loss to Profit in 1Q17   [Jun-16-17 09:08AM  Market Realist]
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Stock chart of OXY Financial statements of OXY
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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