OXY's Market-Beating Gains: A Tactical Play on the OxyChem Sale?

The recent pop in Occidental Petroleum shares is a direct reaction to a major asset sale, but the market's skepticism is clear. Last session, OXY gained 2.6% to close at $41.46, a move that outpaced the broader market's losses. This bounce follows the completion of a strategic divestiture just days earlier. On January 2, the company announced it had completed the sale of its chemical business, OxyChem, to Berkshire Hathaway for $9.7 billion in cash.

The sale is the catalyst. It accelerates Occidental's plan to strengthen its balance sheet and focus on its core oil and gas operations. Yet the market's immediate reaction to the news was muted, if not negative. Despite the cash infusion, the stock has dropped by 4.56% in the past month, underperforming both its sector and the broader S&P 500. This divergence frames the tactical question: is the recent gain a one-day bounce from the sale's completion, or the start of a sustained recovery?

The setup ahead of the next earnings report is fragile. The company is expected to report a year-over-year earnings decline of 57.5% for the quarter. With the OxyChem sale now final, the spotlight shifts entirely to the performance of the remaining oil and gas portfolio. The stock's outperformance last session may be a tactical play on the sale's cash, but the underlying valuation appears vulnerable given the weak outlook for the core business.

The Setup: Weak Earnings vs. Deleveraging Narrative

The tactical play hinges on a stark tension. On one side, the near-term financial picture is weak. The company is expected to report a year-over-year decline of 57.5% in Q4 EPS, landing at just $0.34. Revenue is also projected to fall, with a 12.17% drop to $6 billion. This sets up a brutal earnings report that could pressure the stock further. For the full year, the forecast calls for EPS of $2.25, a 35% drop from 2024. The core oil and gas business is facing headwinds.

On the other side, the strategic narrative is one of balance sheet repair. The OxyChem divestiture is the centerpiece, with firms like Roth Capital and BofA citing it as a key driver for deleveraging. They maintain price targets in the mid-to-high $40s, arguing the $9.7 billion cash infusion will directly fund a planned $6.5 billion debt paydown. BofA even models the sale as adding roughly $4 per share in value after accounting for liabilities.

This creates the setup. The market is being asked to look past a weak quarterly report and a downbeat full-year outlook to value the company on its improved financial risk profile. The recent outperformance may be a bet that the sale's cash flow benefits will soon outweigh the earnings drag from the core business. Yet, as Morgan Stanley notes, much of that operational improvement story may already be reflected in the stock, tempering expectations for a big multiple expansion. The event-driven trade now depends on whether the market believes the strategic value of the sale can quickly outweigh the near-term earnings weakness.

The Valuation and Options Edge

The valuation picture is one of a fragile discount. The stock trades at a forward P/E of 17.92, a slight discount to its industry average. Yet the more telling metric is the fair value estimate, which has dipped to $49.92 per share even as the discount rate remains near 7.17%. This modest trim reflects analysts balancing the positive deleveraging story against a "muted oil backdrop." In other words, the market is pricing in the sale's benefits but not yet rewarding the stock for them. The result is a significant gap between the current price and this fair value, creating a tactical option play.

That play is clear in the options market. For the January 2026 expiration, a put option at the $40.00 strike price offers a compelling risk/reward. Selling this put commits you to buy the stock at $40, but you collect a 50-cent premium, lowering your effective cost basis to $39.50. More importantly, the analytics suggest a 66% chance the contract expires worthless. This is a classic "cash-secured put" strategy, letting an investor buy the stock at a discount while collecting a premium that yields about 1.25% on the cash tied up.

The risk, however, is tied directly to the event-driven setup. The stock's discount to fair value is a function of its underlying vulnerabilities. The core business faces a weak earnings report and a downbeat full-year outlook. More critically, the valuation remains exposed to oil price weakness and the execution risk of the planned $6.5 billion debt paydown. If oil prices stall or the deleveraging plan hits a snag, the stock could fall further, testing the $40 support level and turning the put into a forced purchase. The tactical edge is in the premium collected, but the underlying story must play out as planned for the discount to be realized.

Catalysts and Risks: The Path to February 19th

The tactical thesis now faces its first decisive test. The primary catalyst is the Q4 2025 earnings report and conference call scheduled for February 19th. This event will force a binary choice: either the market will look past the weak quarterly numbers to the strategic value of the OxyChem sale, or it will punish the stock for failing to meet even modest earnings expectations. The setup is fragile, with the stock's recent outperformance likely a function of the sale's completion, not a fundamental re-rating.

Key watchpoints during the call will be management's commentary on three fronts. First, cash flow generation from the remaining oil and gas portfolio must be scrutinized, as it directly funds the planned $6.5 billion debt paydown. Second, investors need clarity on the pace of that deleveraging, which is central to the bullish narrative. Third, updated oil price assumptions will reveal whether the company's outlook is still anchored to a "muted oil backdrop," as analysts note. Any deviation from the expected year-over-year earnings decline of 57.5% will be a major event.

The major risk is that the stock's recent bounce is a short squeeze or technical bounce, leaving it vulnerable to disappointment. The shares have already dropped 4.56% in the past month, underperforming the sector, which suggests underlying skepticism remains. If Q4 results are weak and management offers a cautious forward view, the stock could quickly revert to its pre-sale downtrend. The tactical edge from the options play hinges on the stock holding above $40; a sharp drop on earnings news would test that support and turn a premium collection into a forced purchase at a higher price. February 19th is the date that will determine if the sale's cash is enough to overcome the core business's earnings drag.