Devon Energy Corp (DVN, Financial) experienced a daily loss of 2.91%, bringing its 3-month gain to 3.63%. With an Earnings Per Share (EPS) (EPS) of 7.31, the question arises: is the stock Fairly Valued? In this article, we aim to answer this question through a detailed valuation analysis. To gain a comprehensive understanding of Devon Energy's intrinsic value, we encourage you to read on.
Company Introduction
Based in Oklahoma City, Devon Energy is one of North America's largest independent exploration and production companies. Its asset base spans onshore North America, with exposure to the Delaware, STACK, Eagle Ford, Powder River Basin, and Bakken plays. As of the end of 2022, Devon's proven reserves totaled 1.8 billion barrels of oil equivalent, and its net production for the year was 611,000 boe/d. With 73% of production made up of oil and natural gas liquids, the remainder is natural gas.
At its current price of $51.13 per share and a market cap of $32.80 billion, we compare it to the GF Value of $53.32, an estimate of fair value. This comparison will pave the way for an in-depth exploration of the company's value, ingeniously integrating financial assessment with essential company details.
Understanding GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line gives an overview of the fair value that the stock should ideally be traded at. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it's significantly below the GF Value Line, its future return will likely be higher.
According to the GuruFocus Value calculation, Devon Energy (DVN, Financial) appears to be fairly valued. This suggests that the long-term return of its stock is likely to be close to the rate of its business growth.
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Examining Financial Strength
Before investing in a company, it's crucial to assess its financial strength. Investing in companies with poor financial strength carries a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage can provide insight into a company's financial strength. Devon Energy's cash-to-debt ratio of 0.07 is lower than 83.28% of 1023 companies in the Oil & Gas industry, indicating fair financial strength.
Profitability and Growth
Investing in profitable companies carries less risk. Devon Energy has been profitable 5 years over the past 10 years. With revenues of $17 billion and Earnings Per Share (EPS) of $7.31 over the past 12 months, its operating margin of 37.06% is better than 79.48% of 970 companies in the Oil & Gas industry. Overall, GuruFocus ranks Devon Energy's profitability as fair.
Growth is a crucial factor in a company's valuation. The faster a company is growing, the more likely it is to be creating value for shareholders. Devon Energy's 3-year average annual revenue growth rate is 23.7%, ranking better than 76.55% of 853 companies in the Oil & Gas industry. Its 3-year average EBITDA growth rate is 56.9%, ranking better than 86.6% of 821 companies in the same industry.
ROIC vs. WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) can provide insight into its profitability. Over the past 12 months, Devon Energy's ROIC was 24.3, while its WACC came in at 11.76, indicating that the company is creating value for shareholders.
Conclusion
In conclusion, Devon Energy's stock appears to be fairly valued. The company's financial condition is fair, and its profitability is fair. Its growth ranks better than 86.6% of 821 companies in the Oil & Gas industry. To learn more about Devon Energy stock, you can check out its 30-Year Financials here.
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