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Proprietary Data Insights Financial Pros’ Top Oil & Gas Exploration Stock Searches in the Last Month
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The Energy Name Financial Pros Fawn Over |
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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:
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. Financials
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. Valuation
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. Growth
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. Profitability
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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