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Why Is Devon Energy (DVN) Down 5.5% 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 5.5% 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 Energy Beats Q2 Earnings Estimates, Revises View

Devon Energy Corp. reported second-quarter 2019 adjusted earnings per share of 43 cents, which surpassed the Zacks Consensus Estimate of 36 cents by 19.4%.
 
Revenues


Quarterly revenues of $1,921 million lagged the Zacks Consensus Estimate of $2,216 million by 13.3%. Total revenues were in line with the year-ago figure.

The top-line performance reflects higher contribution from its Upstream segment, offset by lower contribution from marketing businesses.

Highlights of the Release

During the quarter, the company completed the sale of the Canadian business. It is also planning to sale Barnett Shale gas assets in north Texas to focus on the high-return U.S. oil business.

Total production in second-quarter 2019 touched 521,000 barrels of oil equivalent per day (Boe/d), in line with the year-ago figure. Notably, production from Devon Energy’s retained oil assets in the United States was 142,000 barrels per day, which increased 13% from second-quarter 2018 output.

During the second quarter, the company continued to progress via improving operating and corporate cost structure. Its largest field-level cost, lease operating expense, was $133 million compared with $154 million in the year-ago quarter.

The company is targeting annual cost savings of at least $780 million through cost-management initiatives. The measures undertaken by Devon Energy so far will help it achieve nearly 70% of its targeted savings by 2019-end.

During the reported quarter, total expenses decreased nearly 30% year over year to $1,684 million.
 
The company continues to advance the $5-billion share repurchase plan. Devon Energy repurchased an aggregate of 128 million shares under the program for $4.4 billion. It expects to complete the repurchase program by the end of this year, which will surely have a positive impact on earnings.

Realized Prices

Realized oil prices in the quarter were $56.68 per barrel, up 5% from $53.98 in the year-ago period. Realized prices of natural gas were down 16.2% to $1.81 per thousand cubic feet from $2.16 in the prior-year quarter.

Total realized prices, including cash settlements, were $27.84 per Boe, down 1.6% year over year.

Financial Health

As of Jun 30, 2019, the company generated cash and cash equivalents of $3,470 million, up from $2,414 million recorded on Dec 31, 2018. As of Jun 30, 2019, its long-term debt amounted to $4,294 million, almost in line with $4,292 million on Dec 31, 2018.

Devon Energy’s cash flow from operating activities in the first half of 2019 was $999 million compared with $1,309 million in the comparable year-ago period.
 
Guidance

Devon Energy estimates total oil production from retained assets for the third quarter of 2019 within 141,000-147,000 barrels per day.

It also expects 2019 U.S. oil production growth to reach 19%, indicating a 400-basis point improvement from original expectation.

The company lowered its E&P capital expenditure guidance for 2019. The metric is expected within $ 1.8-$1.9 billion versus earlier expectation of $1.8-$2 billion. The reduced investment is driven primarily by drilling and completion efficiencies realized on a year-to-date basis.
 

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -10.42% due to these changes.

VGM Scores

Currently, Devon Energy has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. 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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