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Bull of the Day: Devon Energy (DVN)

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DiscoverGold Member Level  Tuesday, 05/11/21 08:10:33 PM
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Bull of the Day: Devon Energy (DVN)
By: Zacks Investment Research | May 11, 2021

Devon Energy (DVN) is a Zacks #1 (Strong Buy) that is an independent energy company engaged in exploration, development and production of oil and natural gas.

As oil prices continue to climb, so does DVN, which is up over 70% on the year. While this is a big move, there seems to be more room higher for the stock after an impressive earnings report.

More about Devon

The company was founded in 1971, is Headquartered in Oklahoma City, Oklahoma. Devon’s operations are mainly concentrated in the onshore areas of North America, in which it operates almost 4,000 gross wells.

DVN is valued at about $17 billion and has a Forward PE of 12. The company holds a Zacks Style Score of “B” in Growth, “C” in Momentum and “D” in Value.

Q1 Earnings

Devon reported EPS earlier this month, beating on the bottom line by 28%. The company missed on revenues, but raised FY21 production to 529-559k bpd v the 485-499k prior. The company also announced a fixed and variable dividend of $0.34, a 13% sequential increase.

The EPS beat made it the eighth beat out of the last ten quarters. Investors liked the numbers and took the stock up over 10% in just a couple days.



Estimates

The solid report has helped estimates higher as analysts are adjusting their numbers. For the current year, estimates have jumped to $2.12 from $1.94 (9%) over the last 7 days. For next year, estimates have climbed 3% over that same time frame.

Analysts

Since earnings, the stock has seen multiple upgrades, with analysts very favorable towards their variable dividend strategy. Additionally, analysts commented that stronger volumes and cash margins should help shares react positively.

Most price targets range from the $30-$35 area. The higher end targets are about 25% higher form current trading levels.

Oil Prices

As the world reopens the demand for energy is increasing. Crude oil prices have been driven higher in anticipation of resurgence in economic activity globally. Higher prices will only help Devon and fuel the bulls to keep buying the stock.

A move in crude oil prices over $70 to be a major tailwind and help the stock price even higher.

Technicals

The post-earnings move took the stock to 2020 highs. There should be fresh powder above if oil prices remain strong.

Looking at the Fibonacci levels, there are 161.8% extension targets at $31.25. These are found by drawing March highs to April lows. Looking at an even bigger extension, we see 161.8% Fib targets at $40.56. This is found by drawing 2020 highs to the COVID crash lows.

Those that don’t want to chase this breakout can eyeball the 50-day moving average at $23. This level has held up since November and has only been cracked once this year.

Bottom Line

Oil prices continue their bullish momentum as the world gets back to work. Energy companies are well positioned to take advantage of this market as prices rise. Devon’s dividend policy is attractive as rates continue to stay low.

Expect investors to continue buying the stock as it approaches $30. Those looking for a good entry should monitor the stock under $25 on any large market sell off.

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Information posted to this board is not meant to suggest any specific action, but to point out the technical signs that can help our readers make their own specific decisions. Caveat emptor!
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