The Energy Name Financial Pros Fawn Over - InvestingChannel

The Energy Name Financial Pros Fawn Over

Proprietary Data Insights

Financial Pros’ Top Oil & Gas Exploration Stock Searches in the Last Month

#1‘Devon Energy98
#2‘Occidental Petroleum66
#3‘Pioneer Natural Resources Company33
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The Energy Name Financial Pros Fawn Over

As an oil exploration and production (E&P) company, Devon Energy (DVN) lives and dies by the price of crude oil.

With oil trading at multi-month highs, why are shares down 44% since late 2022?

Most of the news media is missing the fact that oil prices were extremely high for about six months in 2022.

That meant Devon and other E&P companies could exploit higher prices.

However, the jump in search volume by financial pros could indicate Devon’s stock is nearing a bottom.

And based on our evaluation…they might be right…

Devon Energy’s Business

Based in Oklahoma City, Devon Energy Corporation sets the bar high in the U.S. oil and gas industry. 

Founded in 1971, this powerhouse boasts a diversified multi-basin portfolio, notably featuring prime acreage in the Delaware Basin. 

Although Devon Energy is primarily an exploration and production company (E&P), its offerings span exploration, development, production, processing, marketing, and financial solutions. 

The company segments its business into the following areas:

  • Oil, Gas, and NGL Sales (98% of total revenues) – This segment encompasses the sale of crude oil, natural gas, and natural gas liquids produced from both operated and non-operated properties.
  • Marketing and Midstream (2% of total revenues) – Focused on third-party commodity sales and gathering, processing, transportation, and storage services. The company’s EnLink Midstream subsidiary handles this segment.

Like many oil and gas companies, Devon grows through acquisitions while returning a large amount of capital to shareholders:


Source: DVN Q2 2023 Investor Presentation

Although the company pulled back on its dividend and stock buyback, it expects to raise both in the coming quarters as oil prices bounce back.



Source: Stock Analysis

2022 was a banner year for Devon with oil prices at multi-year highs.

Although this year isn’t shaping up to be nearly as profitable, management expects profits and revenues to stabilize.

Impressively, the company has held its gross margins though free-cash-flow-margin dropped as Capex increased.

Still, the company has repurchased more than $1 billion of stock in the last 12 months and paid out almost $500 million in dividends, a combined yield of 5.3%.

It’s also noteworthy that Devon holds very little debt at around $6.7 billion, less than one year’s operating cash flow.



Source: Seeking Alpha

Along with its E&P peers, Devon trades at a cheap price-to-earnings and price-to-cash flow ratio.

Only Occidental Petroleum (OXY) and EQT (EQT) trade at cheaper price-to-cash flow multiples.



Source: Seeking Alpha

After a pullback in revenues across the board last year, all the E&P companies are projecting revenue growth in 2023, though some are much higher than others.

Notably, Pioneer Resources (PXD) has had the best average revenue growth over the last five years.



Source: Seeking Alpha

EQT comes in with the top gross, EBIT, and Net Income margins.

Although Devon shows a -3.57% levered FCF margin, we calculated the number to be +6.6%…not great, but it can fluctuate based on capital expenditure timing.

And don’t forget Devon has the best return on equity, assets, and total capital.


Our Opinion 9/10

Devon is arguably the cheapest stock amongst its peers.

While it isn’t always the top performer, management is conservative in running the business.

We appreciate the capital prudence and see it delivering more sustainable returns in the long run. 

Ergo – we would be happy to start a position at these prices.

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