Evercore ISI: Occidental Petroleum Corporation (OXY.US) is deleveraging to reshape its free cash flow prospects, and has raised its rating to "outperform the market."

Evercore ISI on Wednesday upgraded Occidental Petroleum Corporation (OXY.US) from "underperforming the market" directly to "outperforming the market," and raised the target price from $58 to $65. This rare "double upgrade" signifies a significant shift in their view of this oil producer, which has long been lagging behind its peers. Evercore ISI analyst Stephen Richardson skipped the "neutral" rating and went straight to an upgrade, which is rare on Wall Street. In his report, he clearly stated that this upgrade was "not based on absolute growth, but rather on the speed of change and eventual valuation discount." Richardson pointed out that Occidental Petroleum Corporation is "bouncing back from a low, severely discounted base," and the market has "underestimated the sustainability of efficiency improvements and the simplification of the capital structure." He further explained that the company's "substantial reduction in leverage on the balance sheet and structural improvements in capital efficiency" are reshaping the path for free cash flow and shareholder returns. Evercore expects that, assuming WTI oil prices remain at $75 per barrel and production remains constant, Occidental Petroleum Corporation's free cash flow per share compound annual growth rate will reach about 8% by 2030. The firm anticipates that the company will likely restart its stock buyback program in the second half of 2028. Significant deleveraging: Debt reduction reshapes financial foundation The recent deleveraging process at Occidental Petroleum Corporation is a key driver for this upgrade. The company has significantly reduced its asset-liability ratio through the sale of non-core assets and the divestiture of OxyChem. As of the first quarter of 2026, the company's total assets were approximately $80.464 billion. Occidental Petroleum Corporation reiterated its plans to use cash generated from acquisitions and up to $6 billion from asset sales to repay debt by 2026. Evercore believes that the market has not fully reflected the potential for Occidental Petroleum Corporation to generate higher free cash flow and restore substantial shareholder returns in a scenario where oil prices do not see a significant increase. Lower well costs, continued decrease in maintenance capital requirements, and the company's long-life resource base spanning across onshore assets in the United States, enhanced oil recovery operations, and assets in the Gulf of Mexico and the Persian Gulf are all important foundations supporting its long-term cash generation capability. Oil price rebound provides short-term catalyst The upgrade comes as crude oil prices show strong rebound. On Wednesday, WTI crude oil rose by 7% intraday, surpassing $75 per barrel. The oil sector saw a general increase in stock prices, with companies like ConocoPhillips and Chevron Corporation both rising by over 2%. Evercore points out that Occidental Petroleum Corporation is highly sensitive to oil prices, and its stock price often reacts more dramatically than many of its peers during commodity price fluctuations. Recent political risks regarding GEO Group Inc have escalated - reports indicate that U.S. President Trump has declared the end of the temporary ceasefire between the U.S. and Iran, leading to a rapid deterioration in the Middle East situation - further supporting oil prices and oil stocks. Analysts expect significant year-over-year earnings growth in the energy sector for the second quarter. According to data compiled by LSEG, Exxon Mobil Corporation is expected to have approximately $15.9 billion in adjusted net profit for the second quarter, while Chevron Corporation is expected to have around $9.9 billion, both more than three times their first quarter profits. Outlook: Recovery narrative based on "deep discount" The core logic of Evercore's upgrade this time is not based on betting on a large increase in oil prices or production, but rather on starting from a deep discount valuation and relying on continued fundamental improvements. Richardson believes that investors have underestimated the sustainability of the company's efficiency improvements and the long-term value brought by its simplified capital structure. Although Evercore admits that Occidental Petroleum Corporation's free cash flow per share growth rate until 2030 will lag behind that of large peers like Chevron Corporation and ConocoPhillips, the investment value lies in the fact that the company's fundamentals are improving, while the current valuation is still at a significant discount level. The stock has a 52-week trading range of $38.80 to $67.45, and the current stock price is still in the middle to lower range. With continued deleveraging, improving operational efficiency, and political risks from GEO Group Inc supporting high oil prices, Occidental Petroleum Corporation is trying to break free from the label of being a "long-term laggard" and regain market trust.