Oil & Gas Stocks

Devon Energy Corp Valuation – March 2018 $DVN

Company Profile (excerpt from Reuters): Devon Energy Corporation, incorporated on May 18, 1999, is an independent energy company. The Company controls EnLink Midstream Partners, L.P. (EnLink). The Company’s segments include U.S., Canada and EnLink. The Company’s U.S. and Canada segments are primarily engaged in oil and gas exploration and production activities. The Company is engaged primarily in the exploration, development and production of oil, natural gas and natural gas liquids (NGLs). The Company’s operations are concentrated in various North American onshore areas in the United States and Canada. EnLink is a master limited partnership (MLP) with a midstream business and operations located across the United States.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of DVN – March 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $16,724,719,482 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.45 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -99.44% Fail
6. Moderate PEmg Ratio PEmg < 20 -8.42 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.81 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.45 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 6.97 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg -$3.77
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth -$54.71
MG Value based on 0% Growth -$32.07
Market Implied Growth Rate -8.46%
Current Price $31.79
% of Intrinsic Value N/A

Devon Energy Corp does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability or growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $3.37 in 2014 to an estimated $-3.77 for 2018. This level of negative earnings does not support a positive valuation.As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Devon Energy Corp revealed the company was trading above its Graham Number of $13.8. The company pays a dividend of $0.24 per share, for a yield of 0.8% Its PEmg (price over earnings per share – ModernGraham) was -8.42, which was below the industry average of 104.43, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-30.79.

Devon Energy Corp scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$30.79
Graham Number $13.80
PEmg -8.42
Current Ratio 1.45
PB Ratio 1.81
Current Dividend $0.24
Dividend Yield 0.75%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $4,791,000,000
Total Current Liabilities $3,315,000,000
Long-Term Debt $10,291,000,000
Total Assets $30,241,000,000
Intangible Assets $3,880,000,000
Total Liabilities $20,987,000,000
Shares Outstanding (Diluted Average) 526,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $0.48
Dec2017 $1.70
Dec2016 -$2.09
Dec2015 -$31.72
Dec2014 $3.91
Dec2013 -$0.06
Dec2012 -$0.52
Dec2011 $11.25
Dec2010 $10.31
Dec2009 -$5.58
Dec2008 -$4.85
Dec2007 $8.00
Dec2006 $6.34
Dec2005 $6.26
Dec2004 $4.38
Dec2003 $4.04
Dec2002 $0.31
Dec2001 $0.36
Dec2000 $2.75
Dec1999 -$0.84
Dec1998 -$1.66

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate -$3.77
Dec2017 -$5.82
Dec2016 -$8.42
Dec2015 -$8.86
Dec2014 $3.37
Dec2013 $3.09
Dec2012 $3.82
Dec2011 $5.27
Dec2010 $2.47
Dec2009 -$0.29
Dec2008 $2.91
Dec2007 $6.46
Dec2006 $5.22
Dec2005 $4.13
Dec2004 $2.83
Dec2003 $1.81
Dec2002 $0.53

Recommended Reading:

Other ModernGraham posts about the company

Devon Energy Corp Valuation – July 2016 $DVN
58 Companies in the Spotlight This Week – 1/31/15
Devon Energy Corporation Annual Valuation – 2015 $DVN
14 Companies in the Spotlight This Week – 1/18/14
ModernGraham Valuation: Devon Energy Corp (DVN)

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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