Is Trending Stock Devon Energy Corporation (DVN) a buy it now?
Devon Energy (DVN) has been one of the most searched stocks on Zacks.com lately. So, you might want to consider some of the facts that could shape the stock’s performance in the short term.
Shares of this oil and gas exploration company returned +15.2% over the past month compared to the -6.8% change in the Zacks S&P 500 composite. The industry Zacks Oil and Gas – Exploration and Generation – United States, which owns Devon Energy, gained 1.4% over the period. Now the key question is: where could the stock be heading in the near term?
Although media reports or rumors of a material change in a company’s business outlook usually cause its stock to trend and result in an immediate price change, there are always certain fundamental factors that ultimately determine the buy and hold decision.
Revisions to earnings estimates
At Zacks, we prioritize evaluating change in a company’s future earnings projection over anything else. This is because we believe that the present value of its future income stream is what determines the fair value of its stock.
We basically look at how sell-side analysts covering the stock are revising their earnings estimates to reflect the impact of the latest trading trends. And if earnings estimates increase for a company, the fair value of its shares increases. A higher fair value than the current market price stimulates investors’ interest in buying the stock, causing its price to rise. This is why empirical research shows a strong correlation between trends in earnings estimate revisions and short-term stock price movements.
For the current quarter, Devon Energy is expected to post earnings of $2.19 per share, indicating a +265% change from the prior year quarter. The Zacks consensus estimate has changed by +9.7% over the past 30 days.
The current year earnings consensus estimate of $8.49 indicates a year-over-year change of +140.5%. This estimate has changed by +11.6% over the last 30 days.
For the next fiscal year, the consensus earnings estimate of $9.01 indicates a change of +6% from what Devon Energy was expected to report a year ago. Over the past month, the estimate has changed by +136.9%.
With a strong externally audited track record, our proprietary stock rating tool, Zacks Rank, provides a more conclusive picture of a stock’s price direction in the short term, as it effectively harnesses the power of earnings estimate revisions. . Due to the magnitude of the recent consensus estimate change, along with three other factors related to earnings estimates, Devon Energy is ranked Zacks Rank #3 (Hold).
The chart below shows the evolution of the company’s consensus 12-month EPS estimate:
12 month EPS
Revenue Growth Forecasts
Although earnings growth is arguably the most superior indicator of a company’s financial health, nothing as such happens if a company is unable to increase revenue. After all, it is almost impossible for a company to increase its profits for an extended period of time without increasing its revenue. It is therefore important to know the potential revenue growth of a business.
For Devon Energy, the current quarter sales consensus estimate of $4.6 billion indicates a year-over-year change of +90.5%. For the current and future years, the estimates of $17.88 billion and $17.8 billion indicate variations of +50% and -0.4%, respectively.
Latest reported results and history of surprises
Devon Energy reported revenue of $3.81 billion last quarter, representing a year-over-year change of +116.4%. EPS of $1.88 for the same period versus $0.45 a year ago.
Compared to the Zacks consensus estimate of $4.02 billion, reported revenue is a surprise of -5.12%. Surprise EPS was +8.05%.
The company has exceeded consensus EPS estimates in each of the past four quarters. The company has exceeded consensus revenue estimates three times during this period.
No investment decision can be effective without considering the valuation of a stock. Whether a stock’s current price accurately reflects the intrinsic value of the underlying business and the company’s growth prospects is a key determinant of its future price performance.
Compare the present value of a company’s valuation multiples, such as its price/earnings (P/E), price/sales (P/S), and price/cash flow (P/CF), to its own historical values help determine whether its stock is fairly valued, overvalued or undervalued, while comparing the company against its peers on these metrics gives a good idea of the reasonableness of its price.
The Zacks Value Style Score (part of the Zacks Style Scores system), which pays close attention to traditional and unconventional valuation metrics to rank stocks from A to F (an A is better than a B; a B is better than a C; and so on), is quite useful in determining whether a stock is overvalued, correctly priced, or temporarily undervalued.
Devon Energy is rated C on this front, indicating that it trades at par with its peers. Click here to see values for some of the rating metrics that led to this rating.
The facts discussed here and plenty of other information on Zacks.com might help determine whether it’s worth paying attention to the market buzz about Devon Energy. However, its No. 3 Zacks ranking suggests it could perform in line with the broader market in the near term.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.