Why is Devon Energy (DVN) down 5.5% since its last earnings report?

It’s been about a month since Devon Energy’s (DVN) last earnings report. Shares have lost about 5.5% in that time, 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 the most recent earnings report in order to get a better handle on the key drivers.

Devon Energy Beats First Quarter Earnings and Boosts 2024 Guidance

Devon Energy Corp. reported first-quarter 2024 earnings per share of $1.16, up 5.5% from the Zacks Consensus Estimate of $1.10. High production volumes and effective cost management allowed the company to benefit from rising oil prices this quarter.

GAAP earnings per share for the reported quarter were 94 cents, compared to $1.81 in the year-ago quarter. The difference between GAAP and operating profit in the first quarter was due to a 22 percent impact from changes in the fair value of financial instruments.

Revenue

Total revenues for the quarter were $3.56 billion, representing a 0.6% decline from the Zacks Consensus Estimate of $3.61 billion.

Net revenues decreased by 5.9% compared to the same quarter last year.

Production

Net production in the first quarter was 664,000 barrels of oil equivalent per day (Boe/d), up 3.6% year-over-year. Actual production exceeded the forecast of 640,000 Boe/d. Strong performance by the Delaware Basin and Williston Basin increased production volumes year-over-year.

Natural gas liquids production increased 10.7% year over year to 165,000 barrels per day (Bbl/d). Crude oil production was 319,000 Bbl/d, down 0.3% year-over-year due to lower shares from Anadarko and Williston Basin.

Realized prices

Realized crude oil prices (including cash settlements) for the quarter were $75.15 per barrel, up 1.3% from $74.22 a year ago. Realized natural gas liquids prices were $20.73 per barrel, down 14.1% from $24.12 in the prior-year quarter.

Realized gas prices were $1.62 per thousand cubic feet, down 34.4% from $2.47 a year ago.

Realized total oil equivalent prices, including cash settlements, were $43.91 per barrel of oil equivalent, down nearly 5.9% year-over-year.

Other highlights

Total manufacturing costs in the first quarter of 2024 were $751 million, up 8.4% year-over-year.

Devon Energy repurchased 4.7 million shares for a total consideration of $205 million in the first quarter as part of a $3 billion share repurchase program. Since the start of the repurchase program at the end of 2021, the company has repurchased 49.5 million shares for a total amount of $2.5 billion.

Production costs, including taxes, averaged $12.43 per barrel of oil equivalent (Boe) during the quarter. This low-cost structure, combined with the benefits of high-margin production, resulted in a field-level cash margin of $31.09 per boe in the reported quarter.

The board declared a fixed and variable dividend of 35 cents per share. This resulted in an annual dividend of $1.40.

The story continues

Selected financial data

As of March 31, 2024, the company had cash and cash equivalents (including restricted cash) of $1.14 billion compared to $0.87 billion as of December 31, 2023. Total liquidity as of As of March 31, 2024, it amounted to USD 4.1 billion, including cash and facility loans.

As of March 31, 2024, long-term debt was $5.66 billion, compared to $5.67 billion as of December 31, 2023.

Devon Energy’s net cash from operations was $1.74 billion in the first quarter, compared to $1.67 billion a year ago. Capital expenditures were $894 million, down 11.7% from the prior quarter.

Conductivity

In January, the company added a fourth finishing crew in Delaware. As a result of this schedule, second quarter production is expected to increase to the range of 670,000-690,000 Boe per day, with capital expenditure estimated at nearly $950 million.

Thanks to strong first quarter results, Devon increases its full-year 2024 production forecast by 2% to a range of 655,000-675,000 Boe/d from the previous estimate of 640,000-660,000 Boe/d. This incremental production in 2024 is expected to be achieved without any capital increase.

Devon maintained its capital expenditure in the range of $3.3 billion to $3.6 billion for 2024.

How have estimates changed since then?

It turns out that estimate revisions have been trending downward over the past month.

VGM results

At this point, Devon Energy has a solid Growth Score of B, although it lags well behind its Momentum Score with a D. However, the stock is rated a B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has a Total VGM Score of B. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for this company are generally on a downward trend, and the magnitude of these revisions indicates a downward shift. Notably, Devon Energy carries a Zacks Rank #3 (Hold). We expect a linear rate of return on the stock over the next few months.

Industry player performance

Devon Energy is part of the Zacks Oil and Gas – Exploration and Production – United States industry. Over the past month, Viper Energy Partners (VNOM), a company in the same industry, has gained 2.8%. More than a month ago, the company published its results for the quarter ended March 2024.

In the most recent quarter, Viper Energy reported revenue of $205.39 million, representing a year-over-year change of +21.6%. EPS of $0.52 for the same period compared to $0.53 a year ago.

For the current quarter, Viper Energy is expected to report earnings per share of $0.43, representing a change of -8.5% from the year-ago quarter. The Zacks Consensus Estimate has changed -1.4% over the past 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Viper Energy. The stock also has a VGM Rating of D.

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