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Why Is Devon Energy (DVN) Down 7% Since the Last Earnings Report?

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A month has gone by since the last earnings report for Devon Energy Corporation (DVN - Free Report) . Shares have lost about 7% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock’s next earnings release, or is it 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 drivers.

Devon Energy Beats on Q4 Earnings, Gives '17 View

Devon Energy reported fourth-quarter 2016 adjusted earnings per share of $0.25, beating the Zacks Consensus Estimate of $0.19 by 31.6%. Quarterly earnings, however, dropped 67.5% from the year-ago tally of $0.77.

On a GAAP basis, the company reported earnings of $0.63 per share, while the year-ago quarter figure reflected a loss of $11.12. The difference between operating and GAAP figures in the reported quarter was due to asset impairment of $0.19, gain of $0.87 on asset sales, deferred tax valuation allowance of $0.03, early retirement of debt charges of $0.22 and foreign currency adjustments of $0.11.

Revenues

Devon Energy’s quarterly revenues of $3,350 surpassed the Zacks Consensus Estimate of $2,770 million by 20.9%. Total revenue was also up 16.1% from the year-ago figure of $2,886 million.

Revenues for the full-year 2016 came in at $12,197 million, beating the Zacks Consensus Estimate of $11,010 billion by 10.8%. Yearly revenues, however, dropped 7.2% from the year-ago figure of $13,145 million.

Highlights of the Release

In the fourth quarter of 2016, total production touched 537,000 Boe per day, down 21.2% year over year, taking in to account the divested assets production was down 10.6% year over year

At the field level, the company is effectively controlling costs. Thanks to its initiatives, lease operating expenses (LOE) were down 23.4% year over year to $367 million. The decline in LOE was primarily due to improved power and water-handling infrastructure, declining labor expense and lower supply chain cost.

Operating income in the reported quarter was $637 million. In the year-ago quarter, the company had incurred operating loss of $5,425 million.

Realized Prices

Realized oil prices in the quarter were $34.90 per barrel, down 35% from $53.67 per barrel in the year-ago quarter. Realized prices for natural gas were down 9% to $2.23 per thousand cubic feet (Mcf) from $2.45 in the year-ago quarter. Total realized prices in the fourth quarter, including cash settlements, were $23.17 per boe, down 21.3% year over year due to lower commodities prices.

Financial Health

As of Dec 31, 2016, the company had a cash balance of $1,959 million, down from $2,310 million as of Dec 31, 2015.

Long-term debt as of Dec 31, 2016 was $10,154 million, compared with $12,056 million as of Dec 31, 2015. The company used divesture proceeds to repay debts and strengthen its balance sheet.

Devon Energy’s cash flow from operating activities in fourth-quarter 2016 was $536 million, compared with $1,071 million in the year ago quarter. Capital expenditure was $671 million, lower than $1,079 million a year ago.

Guidance

Devon Energy estimates total production from its assets in the first quarter of 2017 and full-year 2017 to be in the range of 535,000–555,000 boe per day and 539,000–561,000 boe per day, respectively.

Capital expenditure (capex) in the first quarter of 2017 and full-year 2017 is expected to be in the range of $525–$595 million and $2,285–$2,690 million, respectively.

Devon Energy further has provided its 2017 first-quarter and full-year LOE outlook in the range of $350–$400 million and $1,500–$1,600 million, respectively.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend in fresh estimates. There have been three upward revisions for the current quarter compared to one downward. In the past month, the consensus estimate has shifted upward by 14.5% due to these changes.

VGM Scores

At this time, Devon Energy's stock has a subpar Growth Score of 'D', however its Momentum is doing a lot better with an 'A'. However, the stock was allocated a grade of 'C' on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'C'. 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 momentum investors than value investors.

Outlook

Estimates have been broadly trending upward for the stock. The magnitude of these revisions also looks promising. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.


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