Yahoo Finance Devon (DVN) Rides on Investments, Returns From Oil-Rich Basins
We recently updated a research report on Devon Energy Corporation DVN. The company is benefiting from steady capital investments, cost management and divestment of non-core assets. Focus on four oil-rich U.S. basins will continue to drive its performance.
Despite the above positives, this Zacks Rank #2 (Buy) stock’s earnings might be adversely impacted by the ongoing volatility in commodity prices.
Tailwinds
Devon’s diversified portfolio and focus on high-margin assets hold significant long-term growth potential. Courtesy of ongoing investments in higher-margin U.S. oil producing regions, Devon is set to increase 2020 production expectation. However, given the unprecedented drop in demand, the company decided to lower second-quarter production. Devon now aims to invest $1 billion in 2020 versus $1.8 billion originally planned. Due to the novel coronavirus outbreak, the company decided to preserve liquidity and delay the pace of capital projects, taking into consideration the falling demand and prices.
Devon is aggressively striving to improve the cost structure. Courtesy of various cost-saving initiatives, the company was able to reduce G&A expenses by $240 million in 2019. It intends to carry on with cost-management initiatives in 2020 and has set a cost-saving target of $250 million for the year.
In 2019, Devon completed the divestiture of Canadian assets and entered into an agreement to sell Barnett Shale gas assets for $830 million, which is on track to close by 2020-end. The primary idea behind the divestiture was to focus on four oil-rich U.S. basins. Devon’s strong U.S. operations are spread in key oil assets of Delaware Basin, Eagle Ford, STACK and Powder River Basin.
Headwinds
Volatile commodity prices and the way commodities will trade in the future could have an impact on the business. At present, prices of commodities are low due to the impact of the novel coronavirus. Supply glut and lower demand for crude oil are adversely impacting its prices.
Devon operates in a highly-competitive oil and gas industry. Some of the competitors in this industry are financially stronger than Devon, with more resources at their disposal. This might limit Devon’s capacity to apply for new drilling rights or acquire properties.
Zacks Rank & Other Key Picks
Devon Energy has a Zacks Rank #2 (Buy). Other top-ranked stocks in the same industry include CNX Resources Corporation CNX, Concho Resources Inc. CXO and Comstock Resources, Inc. CRK, each holding a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
CNX Resources delivered average positive earnings surprise of 111.5% in the last four quarters. The Zacks Consensus Estimate for 2020 earnings has moved up 200% in the past 60 days.
Concho Resources delivered average positive earnings surprise of 4.9% in the last four quarters. The Zacks Consensus Estimate for 2020 earnings has moved up 67.8% in the past 60 days.
Comstock Resources delivered average positive earnings surprise of 24.6% in the last four quarters. The Zacks Consensus Estimate for 2020 earnings has moved up 18.9% in the past 60 days.
Price Performance
Shares of Devon Energy have gained 74.4% in the past three months compared with the industry's 65.3% growth.
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Devon Energy Corporation (DVN) : Free Stock Analysis Report
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