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Devon Stock Trading at a Discount to Industry: Buy or Hold?
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Devon Energy Corporation (DVN - Free Report) is currently trading at a discount compared with its industry on a trailing 12-month Enterprise Value/Earnings before Interest Tax Depreciation and Amortization (EV/EBITDA TTM) basis. Devon is currently trading at 4.01X, lower than its industry’s average of 7.17X. Devon is trading 12.4% below its five-year median of 4.58X. DVN currently has a Value Score of A.
Devon is attractively valued compared with other companies like Chesapeake Energy Corporation (CHK - Free Report) and EQT Corporation (EQT - Free Report) operating in the same industry, having EV/EBITDA TTM of 5.51X and 7.26X, respectively.
Image Source: Zacks Investment Research
Should you consider adding DVN to your portfolio only based on an attractive valuation? Let’s probe further.
Devon’s High-Performing Multi-Basin Assets
Devon has a multi-basin portfolio and focuses on high-margin assets that hold significant long-term growth potential. Devon also has a diverse commodity mix, with a balanced exposure to oil, natural gas and natural gas liquids production volumes. Due to strong production from its muti-basin assets, Devon raised its 2024 production volume to the range of 677,000-688,000 barrels of oil equivalent (Boe) per day from the prior guided range of 655,000-675,000 Boe/d. This incremental production in 2024 is expected to be delivered without an increase in capital.
The company continues to expand its operation in these basins through acquisitions. Devon inked a deal to acquire the Williston Basin business of Grayson Mill Energy. This acquisition will increase DVN’s net acre position in Williston Basin to 430,000 acres from 123,000 acres, while production will triple to 150,000 Boe/d from 50,000 Boe/d. The acquired business will boost operating margins in the Williston Basin due to the midstream infrastructure ownership in 950 miles of gathering systems, an extensive network of disposal wells and crude storage terminals.
DVN’s Effective Cost Management Initiatives
Devon continues to manage costs to boost margins. The company has been reducing its costs by selling higher-cost assets and bringing new lower-cost production assets online. Devon is also working to reduce its drilling and completion costs and is better aligning personnel with the go-forward business.
Due to cost management, production costs, including taxes, averaged $12.25 per Boe in the second quarter of 2024, a decline of 1% from the prior period. The low-cost structure, coupled with the benefits of higher commodity prices, expanded the field-level cash margins of Devon by 6% year over year to $31.19 per Boe.
Devon’s Earnings Estimates Decline
The Zacks Consensus Estimate for Devon Energy’s 2024 and 2025 earnings per share has decreased 5.4% and 10.2%, respectively, in the past 60 days.
Image Source: Zacks Investment Research
DVN Increases Shareholder Value
Devon Energy has been generating stable free cash flow through its operations and is increasing shareholder value through share buybacks and payment of dividends.
Devon repurchased shares worth $2.7 billion as of June 30, 2024, and management has increased its share-repurchase authorization by 67% to $5 billion through mid-year 2026. Devon Energy distributed $276 million in fixed-plus-variable dividends in the second quarter. Check DVN’s dividend history here.
DVN Lags Industry
Devon's stock has underperformed its industry in the last twelve months.
Image Source: Zacks Investment Research
Devon Stock Returns Better Than Industry
DVN’s trailing 12-month return on equity is 29.14%, ahead of the industry average of 17.22%. Return on equity, a profitability measure, reflects how effectively a company utilizes its shareholders’ funds to generate income.
Image Source: Zacks Investment Research
DVN: In a Nutshell
Devon Energy has a balanced exposure to oil, natural gas and NGL production, and its low-cost production structure boosts margins. DVN’s multi-basin exposure also contributes to its strong performance.
Devon is trading at a discount and is increasing shareholder value through dividends and share buybacks. However, since earnings estimates are showing a negative revision, investors should wait and look for a better entry point.
Image: Bigstock
Devon Stock Trading at a Discount to Industry: Buy or Hold?
Devon Energy Corporation (DVN - Free Report) is currently trading at a discount compared with its industry on a trailing 12-month Enterprise Value/Earnings before Interest Tax Depreciation and Amortization (EV/EBITDA TTM) basis. Devon is currently trading at 4.01X, lower than its industry’s average of 7.17X. Devon is trading 12.4% below its five-year median of 4.58X. DVN currently has a Value Score of A.
Devon is attractively valued compared with other companies like Chesapeake Energy Corporation (CHK - Free Report) and EQT Corporation (EQT - Free Report) operating in the same industry, having EV/EBITDA TTM of 5.51X and 7.26X, respectively.
Image Source: Zacks Investment Research
Should you consider adding DVN to your portfolio only based on an attractive valuation? Let’s probe further.
Devon’s High-Performing Multi-Basin Assets
Devon has a multi-basin portfolio and focuses on high-margin assets that hold significant long-term growth potential. Devon also has a diverse commodity mix, with a balanced exposure to oil, natural gas and natural gas liquids production volumes. Due to strong production from its muti-basin assets, Devon raised its 2024 production volume to the range of 677,000-688,000 barrels of oil equivalent (Boe) per day from the prior guided range of 655,000-675,000 Boe/d. This incremental production in 2024 is expected to be delivered without an increase in capital.
The company continues to expand its operation in these basins through acquisitions. Devon inked a deal to acquire the Williston Basin business of Grayson Mill Energy. This acquisition will increase DVN’s net acre position in Williston Basin to 430,000 acres from 123,000 acres, while production will triple to 150,000 Boe/d from 50,000 Boe/d. The acquired business will boost operating margins in the Williston Basin due to the midstream infrastructure ownership in 950 miles of gathering systems, an extensive network of disposal wells and crude storage terminals.
DVN’s Effective Cost Management Initiatives
Devon continues to manage costs to boost margins. The company has been reducing its costs by selling higher-cost assets and bringing new lower-cost production assets online. Devon is also working to reduce its drilling and completion costs and is better aligning personnel with the go-forward business.
Due to cost management, production costs, including taxes, averaged $12.25 per Boe in the second quarter of 2024, a decline of 1% from the prior period. The low-cost structure, coupled with the benefits of higher commodity prices, expanded the field-level cash margins of Devon by 6% year over year to $31.19 per Boe.
Devon’s Earnings Estimates Decline
The Zacks Consensus Estimate for Devon Energy’s 2024 and 2025 earnings per share has decreased 5.4% and 10.2%, respectively, in the past 60 days.
Image Source: Zacks Investment Research
DVN Increases Shareholder Value
Devon Energy has been generating stable free cash flow through its operations and is increasing shareholder value through share buybacks and payment of dividends.
Devon repurchased shares worth $2.7 billion as of June 30, 2024, and management has increased its share-repurchase authorization by 67% to $5 billion through mid-year 2026. Devon Energy distributed $276 million in fixed-plus-variable dividends in the second quarter. Check DVN’s dividend history here.
DVN Lags Industry
Devon's stock has underperformed its industry in the last twelve months.
Image Source: Zacks Investment Research
Devon Stock Returns Better Than Industry
DVN’s trailing 12-month return on equity is 29.14%, ahead of the industry average of 17.22%. Return on equity, a profitability measure, reflects how effectively a company utilizes its shareholders’ funds to generate income.
Image Source: Zacks Investment Research
DVN: In a Nutshell
Devon Energy has a balanced exposure to oil, natural gas and NGL production, and its low-cost production structure boosts margins. DVN’s multi-basin exposure also contributes to its strong performance.
Devon is trading at a discount and is increasing shareholder value through dividends and share buybacks. However, since earnings estimates are showing a negative revision, investors should wait and look for a better entry point.
Those who already own this Zacks Rank #3 (Hold) stock would do well retaining it in their portfolio. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.