Devon Energy (DVN) has been one of the most popular stocks among Zacks.com visitors recently, so it is a good idea to take a look at some factors that could impact the stock's near-term performance.
Over the past month, shares of this oil and gas exploration company have returned -1.2%, compared to a +3% change for the Zacks S&P 500 Composite Index. During that same period, the Zacks Oil & Gas – Exploration & Production – United States industry, which Devon Energy belongs to, has fallen 1.2%. The key question here is, what is the future direction for this stock?
While media reports or rumors of major changes in a company's business prospects usually influence the movement of that company's share price, leading to immediate price movements, there are always certain fundamental factors that ultimately drive a buy-and-hold decision.
Earnings forecast revision
At Zacks, we evaluate changes in a company's future earnings estimates above all else because we believe the present value of future earnings streams determines the fair value of a stock.
It essentially looks at how sell-side analysts covering the stock are revising their earnings forecasts to reflect the impact of the latest business trends. As a company's earnings forecasts rise, so does the fair value of its stock. If the fair value is higher than the current market price, investors will be interested in buying the stock, driving the share price up. This is why empirical studies have shown a strong correlation between trends in earnings forecast revisions and short-term stock price movements.
Devon Energy is expected to report earnings per share of $1.30 for the current quarter, which would represent a -21.2% increase/decrease from the year-ago period. Over the past 30 days, the Zacks Consensus Estimate has moved -5.1% higher/lower.
The consensus earnings estimate for the current fiscal year is $5.37, indicating a -6% change year-over-year. This estimate has changed -0.5% over the past 30 days.
Looking at the next fiscal year, the consensus earnings estimate is $6.24, which represents a +16.1% change from what Devon Energy was expected to report a year ago. Over the past month, estimates have changed -1%.
The Zacks Rank, our proprietary stock rating tool with a strong outside-audited track record, effectively harnesses the power of earnings estimate revisions to provide a more certainty view into near-term stock price direction. The magnitude of the recent change in consensus estimates, along with three other factors related to earnings estimates, have earned Devon Energy a Zacks Rank #3 (Hold).
The story continues
The chart below shows the evolution of the company's consensus EPS estimates over the next 12 months.
12 Month EPS
Projected Revenue Growth
A company's earnings growth is arguably the best indicator of a company's financial health, but nothing happens if the company can't grow earnings. It's nearly impossible for a company to grow its earnings without growing its revenue over the long term. Therefore, knowing a company's earnings growth potential is very important.
For Devon Energy, the consensus revenue estimate for the current quarter is $3.96 billion, indicating a change of +3.3% year-over-year, while estimates for the current and next fiscal years are $15.88 billion and $17.68 billion, indicating changes of +4.1% and +11.3%, respectively.
Last reported results and surprise history
Devon Energy reported revenue of $3.92 billion for the most recent quarter, up 13.4% from the same period a year ago. EPS for the quarter was $1.41, up from $1.18 a year ago.
Compared to the Zacks Consensus Estimate of $3.87 billion, reported revenues represented a surprise of +1.13%. EPS surprise was +9.3%.
The company has beaten consensus EPS estimates in each of the last four quarters, and revenue has surpassed consensus estimates two times during that period.
evaluation
No investment decision can be made efficiently without taking into account stock valuation. Whether a stock's current price properly reflects the intrinsic value of its business and the company's growth prospects is a key factor in determining future stock price movements.
Comparing the current value of a company's valuation multiples such as Price to Earnings (P/E), Price to Sales (P/S), Price to Cash Flow (P/CF) with its historical values helps in identifying whether the stock is fairly valued, overvalued or undervalued. Also, comparing a company with its peers based on these parameters gives a good idea of how reasonably priced its stock is.
The Zacks Value Style Score (part of the Zacks Style Scores system) pays close attention to both traditional and non-traditional valuation criteria to rate stocks from A to F (with An being better than B, B being better than C, etc.), which can be very helpful in identifying whether stocks are overvalued, fairly valued or temporarily undervalued.
On this score, Devon Energy is rated an A, indicating that it is trading at a discount relative to its peers. Click here to see the values of some of the valuation metrics that drove this rating.
Conclusion
The facts discussed here, and many other information on Zacks.com, may help you decide whether the market buzz surrounding Devon Energy is worth following, although its Zacks Rank #3 suggests the company is likely to perform in line with the broader market in the near term.
Want the latest recommendations from Zacks Investment Research? Download today the 7 Best Stocks for the Next 30 Days: Click to get this free report.
Devon Energy Corporation (DVN) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
