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Analyst Blog

On Oct 8, 2013, Zacks Investment Research upgraded Devon Energy Corp. (DVN - Analyst Report) to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

Devon Energy reported positive earnings surprise in each of the past 4 quarters with an earnings beat of 19.7%. The company’s long-term expected earnings growth is poised at a promising 6.7%. Higher production volume and an increase in operating profit at the company’s marketing and midstream segment are expected to act as positive catalyst for earnings growth.

We appreciate Devon Energy’s strong liquidity position as well as stable operational efficiencies. The company’s cash balance totaled $3.36 billion as of Jun 30, 2013 and cash flow from operating activities in second-quarter 2013 was $1.39 billion.

A strong financial position enables Devon Energy to continue with its steady growth strategy. During second-quarter 2013, the company invested $1.2 billion for the exploration and development activities. The company allocates its resources to the projects that are vital for its future growth. Devon Energy is currently focusing on its oil and liquids-rich opportunities, and majority of its drilling programs are centered on the oil-focused assets in the Permian Basin.

Devon Energy’s subsidiary, Devon Midstream Partners, L.P. recently filed a registration statement with the Securities and Exchange Commission to form a publicly traded midstream master limited partnership. The new partnership will primarily run the natural gas gathering and processing business. We view the company’s effort to shift towards pipeline venture as a positive move, mainly due to higher demand for transportation services from the petroleum exploration and production companies in Okla., Texas and Wyo.

Devon Energy has a steady dividend payment record. During the first six months of 2013, the company paid common stock dividends of $170 million. We believe the company’s practice of returning wealth to shareholders through dividend payment will be beneficial for the stock as it attracts investor attention.

Other Stocks to Consider

Besides Devon Energy, other stocks in the coal industry that are presently performing well include Matador Resources Company (MTDR - Snapshot Report), Linn Co, LLC (LNCO - Snapshot Report) and Resolute Energy Corporation (REN - Snapshot Report), each with Zacks Rank #1 (Strong Buy).

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