A month has gone by since the last earnings report for Devon Energy (DVN). Shares have added about 1.4% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Devon Energy 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 drivers.
Devon Tops Q3 Earnings Estimates, Raises Guidance
Devon Energy Corp. reported third-quarter 2019 adjusted earnings per share of 26 cents, which surpassed the Zacks Consensus Estimate of 19 cents by 36.8%.
Quarterly revenues of $1,847 million surpassed the Zacks Consensus Estimate of $1,567 million by 17.9%. However, total revenues declined 14.3% from the year-ago reported figure.
The top-line performance reflects lower contribution from marketing businesses and a decline in realized prices of hydrocarbons compared with the prior-year period.
Highlights of the Release
Total production (including divested U.S assets) in third-quarter 2019 touched 428,000 barrels of oil equivalent per day (Boe/d), a tad higher than the year-ago figure. Excluding production from divested assets, third-quarter total output was 325,000 Boe/d. Strong output from its Delaware assets boosted overall production.
Third-quarter oil production was 148,000 Boe/d, which is above the guided range of 141,000-147,000 Boe/d and 19% higher than the year-ago level.
Devon is progressing well with cost-saving initiatives and has lowered total expenses in the reported quarter by 23.8% year over year to $1,653 million. Its exit from higher-cost Canadian assets helped Devon in lowering expenses.
The company continues to advance the $5-billion share repurchase plan. Devon repurchased an aggregate of 147 million shares under the program for $4.8 billion. It expects to complete the repurchase program by the end of this year, which will surely have a positive impact on earnings. The company repurchased shares worth $550 million during third-quarter 2019.
Total realized prices — including cash settlements — were $27.73 per Boe in the reported quarter, down 6.1% year over year.
As of Sep 30, 2019, the company generated cash and cash equivalents of $1,375 million, down from $2,414 million recorded on Dec 31, 2018. As of Sep 30, 2019, its long-term debt amounted to $4,295 million, almost in line with $4,292 million on Dec 31, 2018.
Devon’s cash flow from operating activities in third-quarter 2019 was $597 million compared with $560 million in the year-ago period.
Devon estimates total oil production from retained assets for the fourth quarter of 2019 within 154,000-160,000 barrels per day. Total production in the quarter is expected in the range of 420,000-448,000 Boe/d.
It expects year-over-year growth in 2019 U.S. oil production in the range of 20-21%, indicating a 550-basis point improvement from original expectation.
Devon has lowered its view for 2019 G&A expenses to the range of $460-$470 million and financing costs to $245-$255 million. When compared with earlier expectations, the G&A and financing cost guidance represents a 17% and 22% decline, respectively.
It expects 2020 oil production to improve in the range of 7-9% from 2019 levels. In 2020, the company expects to lower shares outstanding by 6-8% from 2019 levels.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -31.32% due to these changes.
Currently, Devon Energy has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% 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.
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.
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