Occidental Petroleum Receives 'Underweight' Rating from Wells Fargo Amidst Strategic Shifts

Opening: Wells Fargo Initiates 'Underweight' on Occidental Petroleum

Occidental Petroleum (OXY) experienced a notable decline in its stock price, closing down 2.01% at $41.04 on October 16, 2025. This downturn followed Wells Fargo's initiation of coverage with an "Underweight" rating, signaling a cautious outlook for the oil and gas exploration and production company. The move placed OXY's performance behind the broader market, as the S&P 500 recorded a 0.63% loss on the same day.

The Event in Detail: Wells Fargo's Underweight Rating

On October 17, 2025, Wells Fargo, led by analyst Sam Margolin, initiated coverage on Occidental Petroleum (OXY) with an "Underweight" rating and assigned a price target of $42.00. This assessment suggests that OXY may underperform the market, introducing a conservative perspective on the company's near-term prospects. This rating contrasts with the average one-year price target for OXY, which stands at $51.64, indicating a potential 25.82% upside from the current closing price. Recent analyst activity has shown varied perspectives, with JP Morgan maintaining a "Neutral" rating and raising its price target to $50.00 on October 14, 2025, and Mizuho upgrading OXY to "Outperform" with a $60.00 target on October 3, 2025. Conversely, Evercore ISI Group maintained an "Underperform" rating, lowering its target to $38.00 on October 3, 2025. The consensus rating among analysts for OXY remains a "Hold."

Analysis of Market Reaction: Conflicting Signals Amidst Valuation

The "Underweight" rating from Wells Fargo typically exerts downward pressure on a stock, particularly influencing quantitative funds and cautious investors. However, the market sentiment around OXY remains complex. The put/call ratio of 0.74 for OXY suggests a generally bullish outlook among options traders, indicating a belief that the stock price may rise. Despite this, Occidental Petroleum is currently trading at a Forward P/E ratio of 18.89, which represents a premium compared to its industry average of 16.24. This higher valuation can make the stock more susceptible to negative analyst revisions. Over the last month, OXY shares have seen an 11.25% decrease, underperforming the Oils-Energy sector's 0.65% loss and the S&P 500's 0.92% gain during the same period.

Broader Context & Implications: Strategic Transformation and Institutional Confidence

Occidental Petroleum is undergoing a significant strategic transformation, notably the announced sale of its chemical division, OxyChem, to Berkshire Hathaway for $9.7 billion, with the transaction expected to close in the fourth quarter of 2025. This divestment aims to reduce corporate debt and streamline the company's portfolio, allowing for a greater focus on its core oil and gas operations and burgeoning low-carbon ventures. Institutional confidence in OXY remains robust, with Berkshire Hathaway holding a substantial 26.91% stake. Other major institutional investors include Dodge & Cox and Vanguard. Total shares owned by institutions increased by 1.82% in the last three months. Furthermore, a 6.59% decrease in short interest over the previous month, bringing the total to 34.46 million shares, indicates a reduction in bearish sentiment among short sellers. The "days to cover" ratio stands at 3.05 days, generally considered moderate.

Expert Commentary: Varied Outlooks and Cyclical Concerns

Analyst Sam Margolin's conservative outlook from Wells Fargo highlights potential headwinds. In contrast, Mizuho's upgrade to "Outperform" reflects a more optimistic view. However, some analysts, such as David Deckelbaum of TD Cowen, have expressed caution regarding the timing of the OxyChem deal. Deckelbaum notes that the petrochemical sector is experiencing a cyclical downturn, which could impact the valuation and future free cash flow yield by 2026, adding another layer of complexity to OXY's financial outlook.

Looking Ahead: Upcoming Earnings and Industry Dynamics

Investors will keenly anticipate Occidental Petroleum's upcoming earnings report, scheduled for release on November 10, 2025. Current projections for Q3 2025 indicate earnings of $0.49 per share, representing a significant 51% year-over-year decline, on an estimated revenue of $6.67 billion, a 6.72% decrease from the same quarter last year. For the full year 2025, consensus estimates project earnings of $2.22 per share and revenue of $26.64 billion, marking year-over-year declines of 35.84% and 0.88%, respectively. The Zacks Consensus EPS estimate has seen a 2.09% decrease over the last 30 days, and OXY currently holds a Zacks Rank of #3 (Hold). The unfolding impact of the OxyChem divestment on debt reduction and future growth, alongside the broader dynamics of the Oils-Energy sector, will be critical factors influencing Occidental Petroleum's performance in the coming weeks and months.