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Market Update

Earnings on Tap: Devon Energy

Devon's focus on its domestic onshore energy business is well-supported by its rock-solid balance sheet.

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 Devon Energy (DVN) is set to unveil its latest results Wednesday morning before the markets open. Wall Street analysts are expecting earnings per share to come in at $0.77 compared with $1.21 per diluted share realized in the corresponding period a year ago.

For the third quarter, the producer of natural gas liquids reported a net loss $719 million, or $1.80 per diluted share, primarily driven by a $1.1 billion noncash asset-impairment charge amid weak oil and gas prices. Excluding this and other items, the company earned $0.88 per diluted share in the third quarter.

Since late 2009, Devon has closed on almost $10 billion in asset sales in line with its plans to offload all of its offshore and international energy properties so as to concentrate on its domestic onshore energy business.

Morningstar analyst Mark Hanson believes the decision has been a right one. Hanson thinks the firm now can focus better on its highest-return opportunities, with less exposure to project-cycle risk and greater visibility into its future production profile.

Moreover, Devon's superior financial footing should help the firm weather the current low-gas-price environment and provide flexibility to both aggressively develop existing inventory and capture acreage in emerging plays, adds Hanson.

The stock is up a robust 14% on a year-to-date basis, but it still trades at a discount to Morningstar's fair value estimate for the company.

Gazala Parveen does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.