Ahead of the Bell: Occidental Petroleum

Sterne Agee downgrades Occidental on near-term uncertainty; says long-term still favorable

Associated Press

NEW YORK (AP) -- An analyst said Wednesday that he needs to know more about Occidental Petroleum's potential spinoff and asset sales before he'd be willing to raise the oil company's price target.

Shares had been moving higher recently after CEO Steve Chazen spoke of potential deals to move the stock, but Tim Rezvan, of Sterne, Agee & Leach, said uncertainty about timing gives him pause.

The possible spinoff of Occidental's California portfolio and potential assets sales in the Middle East/North Africa region seem like intriguing long-term opportunities, Resvan said. Until then, Rezvan is maintaining more of a wait-and-see approach.

"We do not see the mere announcement of a broad portfolio review as a catalyst and believe that terms of sale/spin announcements are a necessary precursor to an increase in our price target," Rezvan wrote.

He anticipates that updates Occidental will likely give on its sale/spin options later this year and in 2014 could continue to bring in investors, but doesn't expect definitive news from the company in the next few months.

The analyst estimates that Occidental's California portfolio is worth $13 billion to $15 billion, while its Middle East/North Africa assets are worth $20 billion to $25 billion.

Rezvan said that the California portfolio's been a steady producing asset, but "not a real growth vehicle" for Occidental over the past decade.

Possible hurdles in the Middle East/North Africa include the large size of any potential deal and the limited number of companies that have the balance sheet and cultural acceptance in the region, Rezvan said.

Rezvan downgraded the company from "buy," to "neutral" and removed its $97 price target. He noted that Occidental is trading close to the former price target and is just a hair off its 52-week high. Shares of Occidental closed at $94.26 on Tuesday. Its 52-week high is $95.57.

A representative for Occidental didn't immediately respond to an email seeking comment.

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