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Devon (DVN) Gains From Cost Management & Strong US Production

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Devon Energy Corp. (DVN - Free Report) has been gaining from systematic capital investment, divestment of non-core assets, the WPX Energy merger and efficient cost management. An increase in oil production and strong free cash flow are also likely to drive the company’s performance over the long run.

Devon Energy currently has a Zacks Rank #3 (Hold). It has delivered an average earnings surprise of 18.5% in the last four quarters.

Tailwinds

Courtesy of ongoing investments in high-margin U.S. oil-producing regions Devon’s 2023 total production is expected to be 643,000-663,000 barrels of oil equivalent per day. Devon aims to invest in the range of $3.6-$3.8 billion in 2023.

Devon Energy’s acquisition of WPX Energy has strengthened its position in the Delaware and Williston Basins, as both players have high-quality assets in close proximity. This transaction substantially boosted DVN’s total reserves and will be accretive to DVN’s earnings and cash flow.

Devon continues to manage costs in order to boost margins. It aims to generate stable and free cash flow through its initiatives, which will enable it to carry on shareholder-friendly initiatives such as share buybacks and dividend payments. Devon’s free cash flow is expected to increase with its disciplined strategy to manage operations.

Headwinds

Devon Energy operates in a highly competitive oil and gas industry and is required to follow strict rules and regulations. Any restriction or additional conditions imposed on hydraulic fracturing — involving significant expenses — could adversely impact the company’s prospects.

Price Performance

Devon Energy’s shares have gained 1% in the past month compared with its industry’s growth of 0.2%.

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Stocks to Consider

Some top-ranked stocks worth considering in the same sector are Texas Pacific Land (TPL - Free Report) , Murphy USA (MUSA - Free Report) and Magellan Midstream Partners, L.P. , each carrying a Zacks Rank#2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Texas Pacific Land’s 2023 earnings estimate moved up 6.4% in the past 60 days. TPL reported an average surprise of 1.25% in the trailing four quarters.

The Zacks Consensus Estimate for Murphy USA’s 2023 earnings estimate moved up 5.3% in the past 60 days. MUSA reported an average surprise of 5.08% in the trailing four quarters.

The Zacks Consensus Estimate for Magellan Midstream Partners’ 2023 earnings estimate moved up 1.6% in the past 60 days. MMP reported an average surprise of 3.75% in the trailing four quarters.
 


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