Why Is Devon Energy (DVN) Down 1.2% Since Last Earnings Report?

A month has gone by since the last earnings report for Devon Energy (DVN). Shares have lost about 1.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Devon Energy due for a breakout? 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 Energy Q2 Earnings Lag Estimates on Higher Costs

Devon Energy Corp. reported second-quarter 2018 adjusted earnings per share of 34 cents, lagging the Zacks Consensus Estimate of 37 cents by 8.1%.

On a GAAP basis, the company incurred a loss of 83 cents per share against the year-ago quarter’s earnings of 41 cents. The difference between operating and GAAP figures in the reported quarter was due to the impact of $512 million from one-time items.

Revenues

Devon’s quarterly revenues of $2,249 million lagged the Zacks Consensus Estimate of $3,989 million by 43.6%. Total revenues were up 3.9% from the year-ago figure of $2,165 million.

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

Highlights of the Release

In the second quarter of 2018, total production touched 541,000 barrels of oil equivalent (Boe) per day. The actual production was within the expected range of 524,000-549,000 Boe per day. U.S. production was 409,000 Boe per day, courtesy of strong contribution from the company’s Delaware and STACK assets.

During the reported quarter, total expenses of Devon increased 39.4% year over year to $2,730 million. The year-over-year rise in expenses was due to higher production, exploration and marketing costs.

Devon’s board of directors authorized a $3-billion increase in its previously announced $1 billion share-repurchase program. With this increase, the total repurchase program is presently valued at $4 billion. During the second quarter, the company repurchased shares worth $428 million.

Realized Prices

Realized oil prices in the quarter were $44.63 per barrel, up 17.7% from $37.92 a barrel in the year-ago quarter. Realized prices for natural gas were down 15.7% to $2.14 per thousand cubic feet (Mcf) from $2.54 per Mcf in the prior-year quarter.

Total realized prices, including cash settlements, were $29.13 per Boe, up 16.8% year over year due to higher prices of commodities.

Financial Health

As of Jun 30, 2018, the company generated cash and cash equivalents of $1,460 million, down from $2,642 million on Dec 31, 2017. As of Jun 30, 2018, long-term debt was $5,790 million compared with $6,749 million on Dec 31, 2017.

Devon’s cash flow from operating activities in second-quarter 2018 was $269 million compared with $586 million in the year-ago quarter. Capital expenditure was $602 million, higher than $434 million in the prior-year quarter.

Guidance

Devon reiterated 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 contribution from its resource-rich assets.

Devon estimates total production from its assets in the third quarter of 2018 within 517,000-541,000 Boe per day. Full-year production is expected in the range of 519,000-541,000 Boe per day.

Capital expenditure (capex) in the third quarter of 2018 is anticipated within $570-$630 million. 2018 capex is expected between $2.33 billion and $2.55 billion.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month. The consensus estimate has shifted -15.16% due to these changes.

VGM Scores

Currently, Devon Energy has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

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

Our style scores indicate that the stock is more suitable for value investors than growth investors.

Outlook

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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