Devon Energy Corporation DVN reported better-than-expected fourth-quarter 2024 earnings per share on Feb. 18. Earnings and revenues surpassed the respective Zacks Consensus Estimate by 16% and 3.9%. The fourth-quarter performance was driven by strong production volumes and production from the Rockies and Eagle Ford exceeding estimates due to strong new well productivity, offset marginally by the drop in realized commodity prices.

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DVN has been reporting strong earnings results, courtesy of solid financial and operational performance from its multi-basin assets. The company surpassed expectations in all the last four quarters, with an average earnings surprise of 8.63%.

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Highlights of Devon Stock’s Q4 Earnings

Net production in the fourth quarter totaled 848,000 barrels of oil equivalent per day (Boe/d), up 28.1% year over year. Actual production volume exceeded the guided range of 811,000-830,000 Boe/d. Strong performance from the Delaware Basin and Powder River Basin boosted year-over-year production volumes. The contribution from Eagle Ford and Anadarko Basin also boosted production volumes in the reported quarter.

Natural gas liquids production increased 30.8% year over year to 221,000 barrels per day (Bbl/d). Oil production amounted to 398,000 Bbl/d, up 25.5% year over year, attributed to a strong contribution from the Rockies region.

Devon repurchased shares worth $301 million in the fourth quarter and paid dividends worth $144 million to its shareholders. Management approved a 9% increase in the quarterly dividend for the first quarter of 2025. The new quarterly rate will be 24 cents. Subject to the approval of the board, Devon might buy back shares in the range of $200-$300 million per quarter of 2025.

Production costs, including taxes, averaged $11.30 per Boe in the fourth quarter, a decline of 1% from the prior period. Effective cost management efforts and lower well workovers drove per-unit rates 10% below the guidance for the quarter.

Total realized price, including cash settlements, was $40.32 per Boe, down nearly 10.5% year over year.

Devon’s Earnings Estimates Increase

The Zacks Consensus Estimate for Devon’s 2025 and 2026 earnings per share has increased 2.3% and 2.6%, respectively, in the past 60 days.

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Factors Contributing to Devon Stock’s Strong Performance

Devon has a multi-basin portfolio and focuses on high-margin assets that hold significant long-term growth potential. Devon also has a diverse commodity mix, with a balanced exposure to oil, natural gas and natural gas liquid production volumes.

In 2024, due to extension and discoveries, 415 million barrels of oil equivalent (MMBoe) were added to reserves, while production and revision due to prices offset the addition. In 2024, the company achieved a replacement rate of 154% of production. The strong reserve addition will allow the company to maintain its production volumes over a long period.

Courtesy of ongoing investments in higher-margin U.S. oil-producing regions and solid base production, Devon expects total production of 805,000-825,000 barrels of oil equivalent per day (Boe/d) in 2025. To safeguard itself against fluctuating oil, NGL and natural gas prices, the company has hedged 2025 production volumes.

Devon is benefiting from the closure of the acquisition of the Williston Basin business of Grayson Mill Energy. This acquisition increased DVN’s net acre position in Williston Basin to 430,000 acres from 123,000 acres while production volume is expected to triple to 150,000 barrels of oil per day (Boe/d) from 50,000 Boe/d from this region. The acquired business boosted fourth-quarter production and contributed 117,000 Boe/d and 63,000 Boe/d to the quarterly average.

Devon continues to manage costs to boost margins. The company has been reducing its costs by selling higher-cost assets and bringing new lower-cost production assets online. It is also working to reduce its drilling and completion costs and better align personnel with the go-forward business.

DVN Shares Outperform its Industry

Devon's stock has outperformed its industry in the past month.

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Another stock in the same sector, Occidental Petroleum Corporation OXY, also outperformed its industry in the same period.

Devon Stock Returns Better Than Industry

Devon’s return on equity (ROE) has outperformed the industry average in the trailing 12 months. ROE of DVN was 22.52% compared with the industry average of 15.82%. The company has been investing shareholders’ funds effectively in profitable projects compared to its peers in the industry, which is evident from its ROE.

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Devon’s Shares Are Trading at a Discount

Devon’s shares are inexpensive on a relative basis, with its current trailing 12-month Enterprise Value/Earnings before Interest Tax Depreciation and Amortization (EV/EBITDA TTM) being 4.41X compared with its industry average of 11.54X.

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Wrapping Up

Devon has a balanced exposure to oil, natural gas and NGL production, and its low-cost production structure boosts margins. DVN’s multi-basin exposure and rising production volumes allow it to deliver strong earnings results, which beats expectation.

Devon’s shares are trading at a discount and its ROE is better than the industry and currently having a Value Score of B, which indicates the possibility of strong performance. Improving earnings estimates and improving in share price compared with the industry makes a strong case for Devon Energy and hence, investors should think about adding this Zacks Rank #2 (Buy) stock to their portfolio.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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