We maintain our Neutral recommendation on
) as the results of the company during the first quarter 2012 were
lower than our estimates. The first quarter was affected by higher
Canadian oil price differentials and increases in oilfield service
and supply expenses.
Devon's deep and diversified portfolio, primarily composed of
unconventional resources, reflects significant long-term growth
potential. The company has also shown capital discipline by
rationally allocating resources to projects that are vital for its
future growth and also by trying to live within generated cash
flows. The company's focus presently lies in the development of oil
and liquids-rich opportunities in its portfolio, which we believe
is an excellent strategic move given the depressed natural gas
On the flip side, the growth of energy companies is heavily tied
to oil, natural gas and NGL prices, which are volatile and cyclical
in nature. Any unfavorable movement in the market price and a
decline in realized prices affect the revenue and earnings stream
of the company.
Compliance with regulations and adherence to any change in
policies by the regulators would increase operating costs and
constrain margins. Devon's exploration, development and production
operations involve substantial capital spending. Inability to raise
capital resources, especially under the tight credit environment,
might expose the company to execution challenges and thus hinder
Our projection for the company's revenue for the second quarter
and 2012 is $2.46 billion and $10.1 billion, respectively. Earnings
per share for the quarter and the year are expected to be a
respective $1.18 and $5.23.
Devon Energy currently retains a Zacks #3 Rank, which translates
into a short-term Hold rating. Devon's peer
EOG Resources, Inc.
Chesapeake Energy Corporation
) too retain Zacks # 3 Ranks.
Based in Oklahoma City, Oklahoma, Devon Energy Corporation, is
an independent energy company engaged primarily in exploration,
development and production of oil and natural gas.
CHESAPEAKE ENGY (CHK): Free Stock Analysis
DEVON ENERGY (DVN): Free Stock Analysis Report
EOG RES INC (EOG): Free Stock Analysis Report
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