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Why Is Devon Energy (DVN) Down 11.5% Since Last Earnings Report?

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It has been about a month since the last earnings report for Devon Energy (DVN - Free Report) . Shares have lost about 11.5% 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 drivers.

Devon Q2 Loss Narrower Than Expected, Revenues Miss

Devon Energy Corp.  reported second-quarter 2020 adjusted loss per share of 18 cents, narrower than the Zacks Consensus Estimate of a loss of 26 cents. In the year-ago quarter, the company reported earnings of 43 cents per share.

Revenues

Total revenues of $394 million lagged the Zacks Consensus Estimate of $1,322 million by 70.2%. Moreover, the top line declined 81.1% from the year-ago figure due to a decline in commodity prices.

Highlights of the Release

Total net production for second-quarter 2020 touched 325,000 barrels of oil equivalent per day (Boe/d), which came in at the upper end of the guided range of 302,000-328,000 Boe/d and was in line with second-quarter 2019 levels. Oil production averaged 153,000 barrels per day, which increased 6.3% on a year-over-year basis due to better-than-expected base production performance in the Eagle Ford and Anadarko Basin, supported by strong contribution from the Delaware Basin.

Total production expenses for the second quarter were $263 million, increasing 11.1% year over year. Financing cost for the quarter was $69 million, up 4.5% from the year-ago period.

Devon Energy and BanpuKalnin Ventures plan to accelerate the scheduled closing date of the Barnett Shale asset sale to Oct 1, 2020 from the previously arranged date of Dec 31, 2020. The company expects to receive a net cash payment of more than $300 million at the closing of the transaction.

Realized Prices

Realized oil prices for the quarter were $36.50 per barrel, down 35.6% from $56.70 in the year-ago period. Realized prices for natural gas were down 8.7% to $1.57 per thousand cubic feet from $1.72 in the prior-year quarter.

Total oil equivalent realized prices — including cash settlements — were $22.20 per Boe, down 31.9% year over year.

Financial Highlights

As of Jun 30, 2020, the company had cash and cash equivalents of $1,474 million, up from $1,464 million on Dec 31, 2019. It exited the second quarter with $4.7 billion of liquidity and no debt maturities till 2025.

As of Jun 30, 2020, long-term debt amounted to $4,296 million, up from $4,294 million on Dec 31, 2019.

Devon’s net cash from operating activities for second-quarter 2020 was $150 million, down 65.3% from the year-ago period.

Guidance

Devon estimates total production for third-quarter 2020 in the range of 301,000-318,000 Boe/d. The same for 2020 is expected in the range of 314,000-331,000 Boe/d.  The company raised its 2020 oil production view by 2,500 barrels of oil per day (Bbld) to the range of 148,000-152,000 Bbld, primarily due to strong base production.

Capital expenditure for 2020 is expected within $950-$1,000 million, which reflects a $25 million reduction from the previous midpoint. For the third quarter, it anticipates to invest within $175-$225 million.

Through several initiatives, Devon expects to deliver cost savings of $300 million by year-end 2020.

The company — through strategic initiatives — is expected to generate more than $2 billion in free cash flow, which will be utilized to lower leverage, pay normal dividend and also a special dividend, if approved by the board of directors.

 

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 28.74% due to these changes.

VGM Scores

Currently, Devon Energy has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, 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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