Devon Energy Corp (DVN, Financial) recently saw a daily gain of 4.03%, with a 3-month gain of 4.25%. The company's Earnings Per Share (EPS) stands at 7.31. But the question remains: is the stock fairly valued? This article provides an in-depth valuation analysis of Devon Energy (DVN), offering valuable insights for potential investors.
Company Introduction
Based in Oklahoma City, Devon Energy is one of the largest independent exploration and production companies in North America. The firm's asset base is spread throughout onshore North America and includes exposure to the Delaware, STACK, Eagle Ford, Powder River Basin, and Bakken plays. As of the end of 2022, Devon's proved reserves totalled 1.8 billion barrels of oil equivalent, and net production that year was 611 thousand boe/d. Oil and natural gas liquids made up 73% of production, with natural gas accounting for the remainder.
With a current stock price of $48.84 per share and a market cap of $31.30 billion, Devon Energy's stock is estimated to be fairly valued when compared to its GF Value of $52.59. This assessment sets the stage for a deeper exploration of the company's valuation.
Understanding GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on historical multiples, a GuruFocus adjustment factor, and future estimates of business performance. The GF Value Line provides an overview of the fair value at which the stock should be traded.
Devon Energy's stock is estimated to be fairly valued according to our GF Value calculation. 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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Financial Strength
Before investing in a company, it's crucial to assess its financial strength. This involves checking factors like the cash-to-debt ratio and interest coverage. Devon Energy has a cash-to-debt ratio of 0.07, ranking lower than 83.56% of 1034 companies in the Oil & Gas industry. Overall, with a financial strength score of 6 out of 10, Devon Energy's financial health is considered fair.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, reduces risk. Devon Energy, with an operating margin of 37.06%, ranks better than 80.39% of 984 companies in the Oil & Gas industry. Over the past 10 years, Devon Energy has been profitable 5 times.
Company growth is a key valuation factor. Devon Energy's average annual revenue growth of 23.7% ranks better than 76.1% of 862 companies in the Oil & Gas industry. The 3-year average EBITDA growth is 56.9%, which ranks better than 86.37% of 829 companies in the same industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to the weighted average cost of capital (WACC) is another way to assess its profitability. Devon Energy's ROIC of 24.3 is higher than its WACC of 11.83, suggesting 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 also fair. Its growth ranks better than 86.37% of 829 companies in the Oil & Gas industry. For more details about Devon Energy's stock, you can check out its 30-Year Financials here.
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