Energy stock Devon Energy (DVN) Q3 earnings are due Tuesday after market close. DVN stock is in the buy zone of a cup-with-handle base ahead of the earnings release.
Shares are up Monday in light volume and trading above the 21-day exponential and 50-day moving averages.
Oklahoma City-based oil and natural gas explorer Devon has a major focus in the Delaware Basin area of the Permian Basin in West Texas. It also has acreage in the Eagle Ford basin in Texas, the Williston Basin in the north central U.S., the Anadarko Basin in Oklahoma and the Powder River Basin in Wyoming.
Devon is the third-largest company, measured by market capitalization, in the U.S. explorers/producers industry group, at $50.24 billion. That puts it behind Pioneer Natural Resources (PXD) at $60.92 billion and EOG Resources (EOG) at $70.49 billion.
All are still a fraction the size of companies like Exxon Mobil (XOM), at $461.8 billion, and Chevron (CVX), with a market capitalization of $354.1 billion.
Devon is a leader in the U.S. exploration/production group, which ranks a high No. 10 out of the 197 IBD industry groups.
Acquisitions Add To Ford Eagle And Williston Basin
The 51-year-old company has bulked up recently through acquisitions. Devon announced the acquisition of Validus Energy with operations in Eagle Ford, on Sept. 28, 2022, for roughly $1.8 billion in cash. This purchase adds 42,000 net acres adjoining Devon’s existing leasehold area in the basin. Valdius produces about 35,000 barrels of oil equivalent per day and is expected to increase to an average of 40,000 Boe per day over the next year.
On July 28, Devon announced its acquisition of Rimrock Oil & Gas in the Williston Basin for a total cash deal of $865 million, less adjustments. This acquisition adds 38,000 net acres to Devon’s existing position. Devon expects the new asset’s production to increase to an average of 20,000 Boe per day over the next year.
In January 2021, Devon had effectively doubled its size — paying $8.5 billion to acquire WPX Energy.
Will Earnings Beat Once Again?
Devon’s third-quarter EPS estimate is $2.12, with $4.15 billion in sales — up 96% and 20% — according to FactSet consensus. On the earnings line, that would be a sharp slowdown from the hot triple-digit growth rates recorded over the past six quarters.
The oil producer has a history of beating EPS estimates, with Q2 beating by over 12%, Q1 beating by over 7%, and Q4 2021 by over 12%.
Analysts See Big Growth For Energy Stock
Piper Sandler analyst Mark Lear expects $13.20 billion full-year 2022 sales and $15.84 billion in 2023, vs. $8.08 billion in 2021.
Mizuho cut Devon’s price target to 86 but maintains its buy rating. Piper Sandler has higher expectations, and raised its price target to 96 with an overweight rating. Raymond James holds a strong buy on the energy stock, but lowered its price target to 83.
Devon has an 82 EPS Rating, pulled down by prior suboptimal earnings reports, including a loss in September 2020.
Devon has a best-possible 99 Composite Rating. The company has a high 39% return on equity, well exceeding the 17% minimum set in the CAN SLIM investing strategy.
Devon’s debt ratio weighs in at 70%, vs. 30% for Pioneer and 23% for EOG.
Energy Stock In Buy Zone Ahead Of Earnings
Devon shares are in the 5% buy zone after hitting the 75.37 buy point indicated on the MarketSmith chart. The buy zone extends to 79.14. The stock is within 2% of its 52-week high.
The energy stock holds a 97 Relative Strength Rating, meaning it has outperformed 97% of stocks in the IBD database.
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