While oil has fallen handily in the past week, an interesting analyst call on Occidental Petroleum Corp. (NYSE: OXY) signals that the oil giant might be a safe way to fend off lower oil prices. The main driver here is valuation and the Permian Basin.

Credit Suisse’s Edward Westlake has raised Occidental shares to Outperform from Neutral. He also raised his price target to $79 from $77 — some 27% higher than the $62.10 share price after the call was made. Occidental shares were lower by just over 1% in the hours after that key upgrade, but that was on the heels of a 2.1% drop in the price of oil on Tuesday to $47.36 per barrel.

24/7 Wall St. has added some trading and wider color on this call, but there are also details about the actual analyst call.

One issue that currently is not discussed enough is that Occidental’s dividend of $3.04 per share on an annualized basis would generate a dividend yield of about 4.9%. That puts the Credit Suisse target calling for a total return north of 30%, if the firm’s views pan out. It should also be pointed out that the highest analyst target on Wall Street is up around $90, so despite a total return call north of 30%, this Credit Suisse call is not even the most bullish of them all.

Westlake’s view is that energy has performed poorly against the S&P this year after a decent performance off 2016 lows. Credit Suisse’s U.S. strategist observes that near-term large cap energy valuations look expensive relative to the S&P, but Westlake thinks that Occidental is toward the low end of a reasonable net asset value range of $58 per share (at $50 per barrel WTI) to $86 per share at the firm’s $62.5 per barrel longer term forecast.

Another driver behind the Credit Suisse upgrade was that Occidental’s good inventory of low cost Permian reserves is not reflected in valuation. Westlake said:

If your portfolio does not have enough (Permian) cowbell, then Occidental’s combination of 4.8% dividend yield plus headline 5% to 8% growth looks attractive. Part of our call is that Energy, having underperformed thus far in 2017, is due a catch up.

Several more points were released in the new Permian deck that was released last week:

(1) OXY has a differentiated competitive advantage in the Permian, which is already a low cost area for the industry.
(2) OXY can further lower costs via its new logistics hubs and/or new technology (e.g. multi-laterals, subsurface modeling, Oxy Drilling dynamics, big data).
(3) OXY’s inventory is not reflected in current valuations and continues to grow.

Westlake went on to show that the upside story to a share price of $86 would reflect a 15% bump in Permian well productivity and lower wells costs on its technology gains. The firm’s own model assumes 15% higher total well costs in 2018 due to inflation. The firm also raised earnings estimates from 2017 to 2019 as well, but they did note that the key risk would be lower oil prices caused either by a recession or another flip-flop from OPEC reverting back to a policy of maximizing current production.

Trading at $62.10, Occidental has a 52-week range of $61.01 to $78.48. The oil giant has a consensus analyst price target of $75.00, and its current market cap is almost $47.5 billion.

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