Devon Energy's Q1 Earnings Coming Up: How Should You Play the Stock?

Devon Energy Corporation DVN is expected to report an improvement in its top line and a decline in its bottom line when it reports 2024 results on May 6, after market close. (See the Zacks Earnings Calendar to stay ahead of market-making news.)

The Zacks Consensus Estimate for DVN’s first-quarter revenues is pegged at $4.36 billion, indicating growth of 21.31% from the year-ago reported figure.

The Zacks Consensus Estimate for earnings is pegged at $1.27 per share. The Zacks Consensus Estimate for DVN’s first-quarter earnings indicates an increase of 9.48% from the year-ago reported figure.

DVN Earnings Estimates

Earnings Surprise History

DVN’s earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 8.63%.

What the Zacks Model Unveils

Our model does not conclusively predict a likely earnings beat for DVN this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. That is not the case here, as you can see below.

You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Earnings ESP: DVN has an Earnings ESP of 0.00%.

Zacks Rank: Devon currently carries a Zacks Rank #3.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Some stocks in the same sector that have the combination of factors indicating an earnings beat this season are APA Corporation APA, ConocoPhillips COP and Conterra Energy CTRA. APA, COP and CTRA have an Earnings ESP of +5.13%, +1.88% and +2.84%, respectively, and currently carry a Zacks Rank of 3 each.

Factors That May Have Influenced DVN’s Q1 Earnings

Devon Energy is expected to report strong first-quarter earnings, driven by robust production from its diverse multi-basin portfolio, especially the Delaware Basin, resulting in projected production volumes of 805,000 to 825,000 barrels of oil equivalent per day (Boe/d). To protect against market volatility in oil, NGL, and natural gas prices, the company has hedged its 2025 production, which will also support earnings performance in the quarter.

The recent acquisition of Grayson Mill Energy’s Williston Basin assets has enhanced Devon’s operational scale and expanded its economically viable drilling inventory. Collaborations from this transaction are anticipated to have contributed positively to first-quarter results.

Since merging with WPX Energy, Devon Energy has reduced its outstanding debt by $1.5 billion and continues to pursue further debt reduction, effectively lowering annual interest expenses and easing its interest burden, which is expected to benefit earnings.

Devon Energy’s disciplined cost management is helping to control operating expenses. Strong cash flow generation has enabled share repurchases, which are also likely to enhance earnings for the quarter. Devon’s U.S.-centric approach helps avoid many of the geopolitical and regulatory risks, which is likely to have a positive impact on earnings.

DVN Trading at a Discount

DVN shares are somewhat inexpensive on a relative basis, with its current trailing 12-month Enterprise Value/Earnings before Interest Tax Depreciation and Amortization (EV/EBITDA TTM) being 3.68X compared with its industry average of 10.63X.

DVN’s Price Performance

DVN shares have lost 6.5% in the past three months compared with the industry’s decline of 19.5%.

Investment Thesis

Devon Energy's strong performance is largely driven by its highly productive multi-basin domestic assets. Its recent strategic acquisition positions the company to sustain high-margin production and robust free cash flow for the foreseeable future. With substantial financial flexibility, the company has been actively reducing its debt and lowering annual interest expenses. Declining interest rates are expected to benefit the company by reducing borrowing costs for long-term projects.

Yet, the highly competitive nature of the oil and gas industry could pose challenges, potentially limiting Devon Energy’s ability to secure new drilling rights or acquire assets, especially when competing against financially stronger companies with greater resources.

Wrapping Up

DVN’s high-quality domestic assets with a balanced exposure to oil, natural gas and NGL production and its low-cost production structure boost margins.
 
The company is presently trading at a discount, and efficient cost management will further boost its margins. Those who already own this stock would do well to retain it in their portfolio.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research