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Devon Energy (DVN) Down 2.1% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Devon Energy (DVN). Shares have lost about 2.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Devon Energy due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Devon Energy Q3 Earnings Surpass Estimates, Sales Miss

Devon Energy Corp. reported third-quarter 2023 earnings of $1.65 per share, outpacing the Zacks Consensus Estimate of $1.56 by 5.8%. The bottom line, however, declined 24.3% from the year-ago quarter’s earnings of $2.18 per share.

Revenues

Total revenues for the quarter were $3,836 million, which missed the Zacks Consensus Estimate of $4,030 million by 4.8%. The top line also decreased by 29.4% from the year-ago quarter’s figure. Despite year-over-year improvements in production volumes, softness in commodity prices impacted the top line.

Production

Net production for the reported quarter totaled 665,000 barrels of oil equivalent per day (Boe/d), up 8.3% year over year. Actual production volume came toward the upper end of the guidance range of 658,000-680,000 Boe/d. Strong performance from the Delaware Basin boosted year-over-year production volumes.

Natural gas liquids production increased 7.8% year over year to 166,000 barrels per day (Bbl/d). Oil production amounted to 321,000 Bbl/d, up 9.2% on a year-over-year basis, primarily due to higher oil production at the Delaware Basin.

Realized Prices

Realized oil prices (including cash settlements) for the quarter were $79.81 per barrel, down 5.4% from $84.38 in the year-ago period. Realized prices for natural gas liquids were $20.72 per barrel, down 39.8% from $34.44 in the prior-year quarter.

Realized gas prices were $2.01 per thousand cubic feet, indicating a 65.5% decline from $5.83 reported a year ago.

Total oil equivalent realized prices, including cash settlements, were $46.92 per barrel of oil equivalent, down 19.8% year over year.

Other Highlights

Total production expenses were $757 million, up 3% from that recorded in the corresponding period of 2022.

Since the inception of the share repurchase program in late 2021, Devon has repurchased 40 million shares at a total cost of $2.1 billion. The company is on course to reduce its outstanding shares by 9%.

DVN’s free cash flow for the quarter totaled nearly $843 million. Financing costs amounted to $81 million, up 20.9% from $67 million in the year-ago period.

Devon’s management increased the fixed-plus-variable dividend by 57% to 77 cents per share, making the annualized dividend $3.08 per share.

Financial Highlights

As of Sep 30, 2023, the company had cash and cash equivalents (including restricted cash) of $761 million compared with $1,454 million as of Dec 31, 2022. Total liquidity as of Sep 30, 2023, was $3.8 billion, including cash and credit facility.

As of the same date, long-term debt amounted to $5,675 million, down from $6,189 million as of Dec 31, 2022.

Devon Energy’s net cash from operating activities was $1,725 million in the third quarter compared with $2,104 million in the year-ago period. Capital expenditures, excluding acquisitions, totaled $896 million, indicating a 12% decrease from the previous quarter.

Guidance

The company expects total production of 640,000-660,000 Boe/d in the fourth quarter of 2023.

Devon expects its fourth-quarter oil production volume in the range of 312,000-318,000 Boe/d.
 
Our model currently projects an oil volume of 316,600 Boe/d for the fourth quarter.

The decrease in the fourth quarter’s production from the third quarter will be driven by declines in the Williston Basin and the timing of project completions in the Delaware Basin.

Capital expenditure is projected in the band of $870-$930 million for fourth-quarter 2023.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

The consensus estimate has shifted -10.74% due to these changes.

VGM Scores

At this time, Devon Energy has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Devon Energy has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Devon Energy belongs to the Zacks Oil and Gas - Exploration and Production - United States industry. Another stock from the same industry, Cheniere Energy (LNG), has gained 1.5% over the past month. More than a month has passed since the company reported results for the quarter ended September 2023.

Cheniere Energy reported revenues of $4.16 billion in the last reported quarter, representing a year-over-year change of -53%. EPS of $2.37 for the same period compares with $7.80 a year ago.

For the current quarter, Cheniere Energy is expected to post earnings of $2.70 per share, indicating a change of -82.9% from the year-ago quarter. The Zacks Consensus Estimate has changed -2.3% over the last 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Cheniere Energy. Also, the stock has a VGM Score of C.

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