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Devon (DVN) Down 9% Since Earnings Report: Can It Rebound?

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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 9% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is DVN due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Devon's Q4 Earnings Lag Estimates, Expands Reserves

Devon Energy Corp. reported fourth-quarter 2017 adjusted earnings per share of 38 cents, lagging the Zacks Consensus Estimate of 60 cents by 36.7%.

On a GAAP basis, the company reported earnings of 35 cents per share, down from the year-ago quarter’s earnings of 41 cents. The difference between operating and GAAP figures in the reported quarter was due to a gain from tax reforms and restructuring, while asset impairment charges and deferred tax asset valuation allowance offset the gains.

Revenues

Devon’s quarterly revenues of $3,983 million surpassed the Zacks Consensus Estimate of $3,499 million by 13.8%. Total revenues were up 41.8% from the year-ago figure of $2,808 million.

These year-over-year improvements in total revenues were primarily due to strong contribution from its Upstream business, and Marketing and midstream businesses.

Highlights of the Release

In the fourth quarter of 2017, total production touched 548,000 barrels of oil equivalent (Boe) per day.  The actual production was lower than the expected range of 551,000-571,000 Boe per day. In the quarter, net production in the United States was limited to nearly 9,000 barrels per day, primarily due to the timing of well tie-ins associated with non-operated activity in the STACK.

Devon’s midstream business generated operating profits of $272 million, expanding 35% year to date. This growth was driven entirely by Devon’s strategic investment in EnLink Midstream.

The company, through its successful drilling initiatives has expanded its 2017 proved reserves by 5% to 2.2 billion Boe. Liquid reserves in 2017 increased to 1.2 billion Boe, driven by a 32% increase in U.S. oil reserves.

Realized Prices

Realized oil prices in the quarter were $42.21 per barrel, up 20.9% from $34.90 per barrel in the year-ago quarter. Realized prices for natural gas were up 11.2% to $2.48 per thousand cubic feet (Mcf) from $2.23 per Mcf in the prior-year quarter.

Total realized prices, including cash settlements, were $27.78 per Boe, up 19.9% year over year due to higher prices of commodities.

Financial Health

As of Dec 31, the company generated cash and cash equivalents of $2,673 million, up from $1,959 million as of Dec 31, 2016. Long-term debt was $10,291 million compared with $10,154 million as of Dec 31, 2016.

Devon’s cash flow from operating activities in fourth-quarter 2017 was $725 million compared with $468 million in the year-ago quarter. Capital expenditure was $799 million, higher than $593 million from the prior-year quarter.

Guidance

Devon estimates total production from its assets in the first quarter of 2018 in the range of 530,000-554,000 Boe per day. Full-year production is expected within 552,000-576,000 Boe per day.

Capital expenditure (capex) in the first quarter of 2018 is anticipated to be within $585-$700 million. 2018 capex is expected in the range of $2.33-$2.61 billion.

Devon expects its U.S. oil production for 2018 to be 25% higher than the 2017 level, driven by strong contributions from its resource-rich assets.

Devon’s Exploration & Production capital program in 2018 is expected to range within $2.2 billion to $2.3 billion.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There have been three revisions lower for the current quarter.

VGM Scores

At this time, DVN has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the second quintile 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.

The company's stock is suitable solely for value based on our styles scores.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, DVN has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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