Cost Management & Strong US Production Aid Devon Energy (DVN)

Devon Energy Corp. DVN has been gaining from systematic capital investments, the divestment of non-core assets, the WPX Energy merger and efficient cost management. An increase in oil production and strong free cash flow are also likely to drive the performance over the long run.

Devon Energy, which currently sports a Zacks Rank #1 (Strong Buy), delivered an average earnings surprise of 18.5% in the last four quarters. DVN’slong-term (three to five years) earnings growth is currently pegged at 51.4%. Moreover, Devon Energy’s current dividend yield of 6.8% is better than the Zacks S&P 500 Composite’s yield of 1.5%.You can see the complete list of today’s Zacks #1 Rank stocks here.

Tailwinds

Due to the ongoing investments in high-margin U.S. oil-producing regions, Devon Energy’s 2022 total production is expected in the range of 570,000-600,000 barrels of oil equivalent per day. DVN already hedged 20% of 2022 oil production volumes against fluctuating oil, NGL and natural gas prices. Devon aims to invest in the range of $2.1-$2.4 billion in 2022 and the upstream capital expenditure for 2022 is expected in the range of $1.9-$2.2 billion.

Devon Energy completed its all-stock merger with WPX Energy. This deal will strengthen their positions in the Delaware and Williston Basins as both players have high-quality assets in proximity. Moreover, both the companies have a focus on developing oil-rich U.S. assets. This transaction will substantially boost the total reserves and will be accretive to combined DVN earnings and cash flow.

Devon Energy is aggressively striving to improve the cost structure. It achieved its 2021 cost savings target of $600 million through efficient management of operations, reduced per-foot drilling and completed cost to $550 in 2021 from $940 in 2018. The ongoing cost-management initiatives will continue to boost margins and strengthen operations. Devon Energy, through its cost-saving plan, intends to save more than $2.5 billion over the next five years.

Headwinds

Devon Energy operates in a highly competitive oil and gas industry. Also, it needs to follow strict Federal, State and Tribal rules and regulations. Any restriction or additional conditions imposed on hydraulic fracturing — involving significant expenses — could adversely impact the company’s prospects.

Price Performance

In the past six months, shares of Devon Energy have rallied 77.8%, outperforming the industry’s 46.9% growth.

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Other Stocks to Consider

Some other top-ranked stocks from the same sector, such as Marathon Petroleum MPC, Marathon Oil MRO and Chevron CNX, among others, are worth considering.

The long-term (three to five years) earnings growth of Marathon Petroleum, Marathon Oil and Chevron is 19%, 14.4% and 13.1%, respectively.

The Zacks Consensus Estimate for 2022 earnings per share of Marathon Petroleum, Marathon Oil and Chevron has moved up 149.4%, 93.6% and 53.9% year over year, respectively.

MPC, MRO and CNX delivered an average earnings surprise of 74.8%, 5.6% and 6.3%, respectively, in the last four quarters.

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Devon Energy Corporation (DVN) : Free Stock Analysis Report

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