This oil company was lauded by Michael Liss, portfolio manager for the American Century Value Fund (TWVLX), for its “strong balance sheet and revamped portfolio”, saying “the company’s smart moves during the downturn have set it up for a fantastic run to the upside.” Imperial Capital just initiated coverage with an “outperform” rating on the shares.
Devon Energy Corp. (DVN)
from Stock Picker’s Digest
Devon Energy Corp. (DVN) is one of the largest U.S.-based oil and natural gas explorers and producers. Its production mix is 40% gas and 60% oil.
The company narrowed its focus with its July 2014 sale of some of its properties to Linn Energy for $2.3 billion. The deal included holdings in the Rockies, the onshore Gulf Coast and the Mid-Continent region (which includes Oklahoma, Kansas and Texas).
The sale lets Devon focus on what it views as low risk/ high-reward properties, especially the oil producing assets it bought in Texas’s Eagle Ford shale formation for $6 billion in 2013.
Excluding the assets sold to Linn, Devon’s daily output averaged 685,000 barrels of oil equivalent in the quarter ended March 31, 2015, up 21.7% from 563,000 a year earlier. Production rose on drilling success at Eagle Ford and new capacity at its Jackfish heavy-oil plant in Canada.
Cash flow per share fell 8.9%, to $3.50 from $3.84, on lower realized oil and gas prices. The company’s $10.3 billion of long-term debt is a manageable 38.7% of its market cap. It also holds cash of $1.9 billion, or $4.62 a share.
The stock trades at 4.7 times Devon’s annual cash flow of $14.00 a share, based on the latest quarter— although that cash flow will vary along with oil and gas prices.
Devon Energy is a buy.
Patrick McKeough, Stock Picker’s Digest, www.tsinetwork.ca, 888-292-0296, June 2015