Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Devon Energy: Synergies, Cash Flow to Boost Stock

Stock MarketsAug 24, 2021 08:01AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
© Reuters Devon Energy: Synergies, Cash Flow to Boost Stock

Devon Energy Corporation (NYSE:DVN) is one of the most undervalued stocks in the market, and could experience significant upside over the next 12 months. The energy company posted its second-quarter earnings on August 3.

Looking at the industry as a whole, Goldman Sachs expects that the latest OPEC+ deal to boost supply will stabilize oil prices, but argues that short-term supply might not meet demand.

Goldman has set an $80 price target on WTI Crude (one of the main oil benchmarks), subsequently causing much optimism for energy stocks. (See DVN stock charts on TipRanks) This author is bullish on DVN stock.

Earnings Beat

Analysts' earnings estimates were crushed as Devon Energy produced 291,000 barrels of oil per day in its second quarter, to beat revenue estimates by $420 million. Furthermore, operating cash flows surged by 85% year-over-year, free-cash flow increased by 600%, and non-GAAP EPS estimates were beaten by $0.07.

The company decided to reward shareholders by declaring a fixed-plus-variable dividend of $0.49 per share, a 44% increase from its previous dividend of $0.34.

Devon Energy's WPX Merger  

In January, Devon Energy completed an all-stock deal with WPX Energy (NYSE:WPX), further strengthening its presence in the Delaware Basin.

It is anticipated that synergies from this deal will improve operating cash flows by 5-10%; a significant improvement considering Devon Energy's trailing 12-month operating margin is 5.94%.

Improvements in Operating Efficiency

Devon Energy has emphasized investing in technology that will boost production volume and lead to cost-saving.

Furthermore, Devon energy has emphasized cash-flow generation over exploration growth, resulting in lower reinvestment rates and better free-cash flow to shareholders. FitchRatings announced on August 19 that it had taken note of the change in strategy, and upgraded the company's credit rating to BBB+ from BBB.

Valuation with Solid Dividend Payments

At 9.51, Devon energy has one of the lowest forward P/E ratios in the market, which is a dream if you're a value investor. It's expected that strong sales growth will lead the way, as the company recovers from the pandemic's disruptions to supply chains.

The company's debt-to-assets ratio decreased by more than 10% over the past quarter. According to Fitch, share repurchases are a strong possibility, and a surge in stock price could follow if such an event is met with the growing asset base.

With a trailing 12-month cash-flow payout ratio of only 9.66%, we can conclude that investors' dividend safety will remain intact, especially with the prospect of further cash-flow improvements.

Wall Street's Take

Overall, the consensus is that Devon Energy is a Strong Buy, based on 13 Buys and two Holds. The average DVN price target of $38 implies 39.2% upside potential to current levels.

Disclosure: At the time of publication, Steve Gray Booyens did not have a position in any of the securities mentioned in this article.

Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.

Devon Energy: Synergies, Cash Flow to Boost Stock

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email