Pioneer Natural Resources (PXD 0.55%) believes its stock is dirt cheap. That's clear from comments by CEO Scott Sheffield on its fourth-quarter earnings call. The oil company is putting money behind that view by repurchasing a meaningful amount of stock. 

Here's a closer look at this oil stock's value proposition.

Backing its belief with cash

Pioneer Natural Resources has become a big-time dividend stock over the past year. Thanks to the company's fixed-plus-variable dividend framework, it paid out $26 per share in dividends last year, driven by higher oil prices. That gave it one of the highest dividend yields in the S&P 500 at around 11%.   

On the earnings call, Sheffield said:

In addition to the strong dividend payout, we continue to see attractive value in repurchasing our shares. We believe they trade at a significant discount to our intrinsic value. Demonstrating this commitment, during the fourth quarter, Pioneer repurchased $400 million of stock, further reducing shares outstanding, which benefits long-term share returns and importantly, improves per-share metrics.

He also said that the company had already repurchased another $250 million of its shares this year. That brought its total to $1.9 billion since the start of last year. As a result, the company has reduced its outstanding shares by around 3.5%.

That share count should continue falling. Pioneer has about $2.1 billion remaining on its $4 billion share repurchase authorization, so it can continue buying back its shares this year.

A cheap oil stock

There are many ways to value a stock. A common method is to look at free-cash-flow yield -- free cash flow (FCF) divided by market cap -- compared with its peers and broader market indexes.

Based on current oil and gas pricing, Pioneer expects to produce more than $4 billion in FCF this year. With a current market cap of $47 billion, Pioneer has an FCF yield of around 8.5%.

That gives it a cheaper valuation than many rivals, including Devon Energy (DVN 0.41%). For example, Devon's 2023 outlook has it on track to produce $2.5 billion of FCF, giving it a roughly 8% FCF yield at the recent price (with a higher yield meaning it has a lower valuation). Meanwhile, both oil companies are much cheaper than the broader market indexes. The S&P 500's FCF yield is around 5%, while the Nasdaq Composite's is about 4%.

Devon's low valuation is also driving its share repurchases. It's currently over halfway through its $2 billion authorization, which could enable it to retire about 5% of its outstanding shares.

Meanwhile, Pioneer is even more attractive when considering the potential upside for oil prices. The company's CEO believes oil prices will heat up this summer and could top $100 a barrel. That would enable Pioneer to produce even more FCF, given that crude oil is currently in the high $70s.

While it would pay out 75% of that incremental FCF to its shareholders via its variable dividend strategy, it could use some of the remaining 25% to repurchase more shares. 

An attractive value these days

Pioneer Natural Resources trades cheaply relative to the free cash flow it can produce at current oil and gas prices. That's leading the company to use most of the FCF it doesn't pay in dividends to repurchase its shares. Those value-based repurchases make Pioneer an attractive option for value-conscious investors seeking income and upside potential.