Devon Energy (DVN) Up 13% Since Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Devon Energy Corporation DVN. Shares have added about 13% in that time frame.

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

Devon Beats on Q1 Earnings, Ups U.S. Oil Output View

Devon Energy Corp. reported first-quarter 2018 adjusted earnings per share of 20 cents, beating the Zacks Consensus Estimate of 19 cents by 5.3%.

On a GAAP basis, the company incurred a loss of 38 cents per share against the year-ago quarter’s earnings of 58 cents. The difference between operating and GAAP figures in the reported quarter was primarily due to a $312 million charge related to the early retirement of debt.

Revenues

Devon’s quarterly revenues of $3,810 million lagged the Zacks Consensus Estimate of $3,885 million by 2.2%. Total revenues were up 7.3% from the year-ago figure of $3,551 million.

This year-over-year improvement in total revenues was primarily due to strong contribution from its Marketing and midstream businesses.

Highlights of the Release

In the first quarter of 2018, total production touched 544,000 barrels of oil equivalent (Boe) per day.  The actual production was within the expected range of 530,000-554,000 Boe per day. U.S. production was 413,000 Boe per day, thanks to strong contribution from the company’s Delaware and STACK assets.

Devon has undertaken cost saving initiatives, which will allow it to cut down its general and administrative as well as interest expenses by $175 million annually.

Devon announced that its board of directors authorized a $1.0 billion share-repurchase program. As of the end of April, the company used $204 million from the fund to repurchase 6.2 million of shares.

Realized Prices

Realized oil prices in the quarter were $40.05 per barrel, up 5.9% from $37.83 per barrel in the year-ago quarter. Realized prices for natural gas were down 2.6% to $2.58 per thousand cubic feet (Mcf), from $2.65 per Mcf in the prior-year quarter.

Total realized prices, including cash settlements, were $27.98 per Boe, up 7.7% year over year due to higher prices of commodities.

Financial Health

As of Mar 31, 2018, the company generated cash and cash equivalents of $1,424 million, down from $2,673 million as of Dec 31, 2017. As of Mar 31, 2018, long-term debt was $9,628 million compared with $10,291 million as of Dec 31, 2017.

Devon’s cash flow from operating activities in first-quarter 2018 was $804 million compared with $746 million in the year-ago quarter. Capital expenditure was $832 million, higher than $653 million in the prior-year quarter.

Guidance

Devon expects its U.S. oil production for 2018 to be 16% higher than the 2017 level (up from the previous guidance of 14%), driven by strong contributions from its resource-rich assets.

Devon estimates total production from its assets in the second quarter of 2018 to be within the range of 524,000-549,000 Boe per day. Full-year production is expected in the range of 536,000-560,000 Boe per day.

Capital expenditure (capex) in the second quarter of 2018 is anticipated within $585-$700 million. 2018 capex is expected between $2.33 billion and $2.55 billion. Devon’s Exploration & Production capital program in 2018 will be worth in the range of $2.2-$2.3 billion.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There have been four revisions higher for the current quarter compared to two lower.

Devon Energy Corporation Price and Consensus

Devon Energy Corporation Price and Consensus | Devon Energy Corporation Quote

VGM Scores

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

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

Zacks' style scores indicate that the company's stock is suitable for value and growth investors.

Outlook

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

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