Raymond James Trims Price Target on Devon Energy to $53 From $54, Maintains Outperform Rating

Devon Energy (DVN) has been one of the most searched-for stocks on Zacks.com lately. So, you might want to look at some of the facts that could shape the stock's performance in the near term.

Over the past month, shares of this oil and gas exploration company have returned -2.1%, compared to the Zacks S&P 500 composite's +1.7% change. During this period, the Zacks Oil and Gas - Exploration and Production - United States industry, which Devon Energy falls in, has gained 10.4%. The key question now is: What could be the stock's future direction?

Although media reports or rumors about a significant change in a company's business prospects usually cause its stock to trend and lead to an immediate price change, there are always certain fundamental factors that ultimately drive the buy-and-hold decision.

Revisions to Earnings Estimates

Rather than focusing on anything else, we at Zacks prioritize evaluating the change in a company's earnings projection. This is because we believe the fair value for its stock is determined by the present value of its future stream of earnings.

Our analysis is essentially based on how sell-side analysts covering the stock are revising their earnings estimates to take the latest business trends into account. When earnings estimates for a company go up, the fair value for its stock goes up as well. And when a stock's fair value is higher than its current market price, investors tend to buy the stock, resulting in its price moving upward. Because of this, empirical studies indicate a strong correlation between trends in earnings estimate revisions and short-term stock price movements.

Devon Energy is expected to post earnings of $0.99 per share for the current quarter, representing a year-over-year change of -29.8%. Over the last 30 days, the Zacks Consensus Estimate has changed -18.3%.

For the current fiscal year, the consensus earnings estimate of $4.79 points to a change of -16.1% from the prior year. Over the last 30 days, this estimate has changed -3.8%.

For the next fiscal year, the consensus earnings estimate of $4.80 indicates a change of +0.1% from what Devon Energy is expected to report a year ago. Over the past month, the estimate has changed -9.9%.

With an impressive externally audited track record, our proprietary stock rating tool -- the Zacks Rank -- is a more conclusive indicator of a stock's near-term price performance, as it effectively harnesses the power of earnings estimate revisions. The size of the recent change in the consensus estimate, along with three other factors related to earnings estimates, has resulted in a Zacks Rank #3 (Hold) for Devon Energy.

The chart below shows the evolution of the company's forward 12-month consensus EPS estimate:

12 Month EPS

Revenue Growth Forecast

While earnings growth is arguably the most superior indicator of a company's financial health, nothing happens as such if a business isn't able to grow its revenues. After all, it's nearly impossible for a company to increase its earnings for an extended period without increasing its revenues. So, it's important to know a company's potential revenue growth.

For Devon Energy, the consensus sales estimate for the current quarter of $4.17 billion indicates a year-over-year change of +0.6%. For the current and next fiscal years, $15.57 billion and $16.59 billion estimates indicate +2.1% and +6.5% changes, respectively.

Last Reported Results and Surprise History

Devon Energy reported revenues of $4.02 billion in the last reported quarter, representing a year-over-year change of +4.9%. EPS of $1.10 for the same period compares with $1.65 a year ago.

Compared to the Zacks Consensus Estimate of $3.75 billion, the reported revenues represent a surprise of +7.2%. The EPS surprise was +3.77%.

The company beat consensus EPS estimates in each of the trailing four quarters. The company topped consensus revenue estimates three times over this period.

Valuation

Without considering a stock's valuation, no investment decision can be efficient. In predicting a stock's future price performance, it's crucial to determine whether its current price correctly reflects the intrinsic value of the underlying business and the company's growth prospects.

While comparing the current values of a company's valuation multiples, such as price-to-earnings (P/E), price-to-sales (P/S) and price-to-cash flow (P/CF), with its own historical values helps determine whether its stock is fairly valued, overvalued, or undervalued, comparing the company relative to its peers on these parameters gives a good sense of the reasonability of the stock's price.

The Zacks Value Style Score (part of the Zacks Style Scores system), which pays close attention to both traditional and unconventional valuation metrics to grade stocks from A to F (an An is better than a B; a B is better than a C; and so on), is pretty helpful in identifying whether a stock is overvalued, rightly valued, or temporarily undervalued.

Devon Energy is graded A on this front, indicating that it is trading at a discount to its peers. Click here to see the values of some of the valuation metrics that have driven this grade.

Bottom Line

The facts discussed here and much other information on Zacks.com might help determine whether or not it's worthwhile paying attention to the market buzz about Devon Energy. However, its Zacks Rank #3 does suggest that it may perform in line with the broader market in the near term.

Zacks Investment Research

For Immediate Release

Chicago, IL – November 22, 2024 – Zacks Equity Research shares Tesla TSLA as the Bull of the Day and Hershey HSY as the Bear of the Day. In addition, Zacks Equity Research provides analysis on EOG Resources EOG, ExxonMobil XOM and Devon Energy DVN.

Here is a synopsis of all five stocks.

Bull of the Day:

Trump: Bullish for Tesla

Zacks clients who follow my work in the Technology Innovators service know that we have been bullish on Zacks Rank #1 (Strong Buy) stock Tesla for a while now (we are up more than 100% in the name currently). In my last “Bull of the Day” article, I also wrote about the stock.

However, as I have dug further into the story, I am becoming more bullish, and, in my view, those who missed out on the move so far should not fret as 2025 will likely be a breakout year for the company. Below are the top three ways the Trump victory will be bullish for Tesla in 2025:

1. Trump Deregulation Plans Are Bullish for Tesla

CEO Elon Musk has said that he is betting Tesla’s future on autonomous driving and robotaxis. Thus far, Alphabetis winning the battle for robotaxi supremacy. While Tesla’s “Full Self Driving” (FSD) still requires a human to be behind the wheel, Waymo’s robotaxis are live in four cities: Phoenix, Arizona, Los Angeles, San Francisco, and Austin. While Waymo may win the battle, the robotaxi buildout is in the early innings.

Earlier this week,the Trump team promised to cut back regulations on autonomous driving. The news is huge for Tesla because strict regulations have prevented Tesla from rolling out its delayed (and highly anticipated) robotaxis. Further, Sean Duffy, who Trump named as his pick for Secretary of Transportation, is another bullish signal for the stock. In 2018 remarks, Duffy said that AV “technology can be remarkable in keeping our families and kids safe.”

2. EV Credit Roll Back Will Crush the Competition

Last week, TSLA shares dumped nearly 6% after the Trump team announced they would sunset the generous electric vehicle (EV) tax credits provided by the outgoing Biden administration. The EV credits, part of the Inflation Reduction Act (IRA), provided tax credits of up to $7,500 for “qualified, new, clean vehicles.”

Though TSLA shares sold off on the EV tax credit sunset news, they were likely searching for a reason after the 29% explosion following the U.S. presidential results. The news is stealthy bullish for Tesla because the tax credit removal will have more of an impact on low-margin EV competitors. For instance, EV pure play Rivianhas negative profit margins. Further, traditional automakers like Fordhave profit margins of just 1.93%, while Tesla enjoys margins of nearly 9%. In other words, competitor profit margins will be squeezed, and legacy automakers will be forced to focus on higher- margin cars that run on fossil fuels.

3. Trump to Levy Tariffs

Another core tenant of the “Trump doctrine” is using tariffs to equalize America’s many trade imbalances. President-elect Donald Trump has promised to levy equal tariffs on foreign countries that levy tariffs on the U.S. and threaten American jobs. These protectionist policies will work in Tesla’s favor, keeping Chinese competition like Niofrom entering the U.S. market.

Tesla Gross Profit Continues to Expand

Tesla’s gross profits are expanding and will continue on that trajectory. Cybertruck sales have been through the roof and revenue from its energy generation and storage business is surging at a compound annual growth rate (CAGR) of ~120% annually.

Heavy & Unusual Call Flow

Joe Kunkle of OptionsHawk (@OptionsHawk) pointed out that a deep-pocketed options player bought $33 million worth of December $370 calls. Call buying of this magnitude is always worth watching.

Long-Term Breakout

Tesla is emerging from a massive long-term base structure, which suggests that the previous all-time highs are likely to be a magnet into 2025.

Bottom Line

EV king Tesla has returned to glory. However, Donald Trump’s election victory is likely to inject even more life into the stock in 2025.

Bear of the Day:

Zacks Rank #5 (Strong Sell) stock Hershey, which is the largest chocolate manufacturer in North America and the global leader in chocolate and non-chocolate candy. Beyond chocolate, Hershey manufactures pantry items like baking ingredients, toppings and beverages, gum, and snack mixes. Though Hershey is the dominant player in the chocolate industry, growth has slowed, margins are shrinking, and a Trump administration appointee is a threat to the business.

Trump Taps RFK for HHS

The overwhelming Republican victory in this year’s elections will have consequences far beyond politics. To understand how, investors need not look further than the SPDR S&P Biotech ETFperformance after President-elect Donald Trump announced that he would pick former presidential candidate Robert F. Kennedy Jr. to head the Department of Health and Human Services (HHS). Once the news broke that RFK would oversee HHS, XBI flushed nearly 12% in a single week.

Kennedy, who is against biotech advertising on television and known for his controversial stance on vaccines, is seen as a threat to biotech companies. However, if you peel back the onion further, Kennedy could have an impact that stretches beyond biotech.

“Processed Foods Are Poison”

While RFK has several controversial beliefs, one of his lesser controversial ideas is that processed foods harm Americans. The majority of Americans are obese due to fast food consumption in restaurants like McDonald’s. Meanwhile, RFK pointed out recently that Kellanova, the Fruit Loop cereal maker formerly known as Kellog’s, uses several more harmful ingredients in its U.S. cereals compared to international cereals. If RFK gets his way, processed food giants like Hershey may be forced to use more expensive ingredients and change their recipes which would create a bearish headwind.

Market Environment: Value Stocks are Out of Favor

Currently, Wall Street investors are favoring risk-on areas of the market, such as Bitcoin, which is encroaching on $100,000 for the first time in its history. The relative price weakness in HSY shares is evidence that investors are in no rush to be in safe-haven stocks. Though the S&P 500 Index is up 26% year-to-date, HSY shares are down nearly 10%.

High Cocoa Prices Hurt HSY

Cocoa, HSY’s most essential ingredient, has seen prices increase significantly, causing margin pressures for the company.

Bottom Line

With safe haven value stocks out of favor, rising cocoa prices, shrinking margins, and a new HHS head, Hershey stock is an avoid.

Additional content:

Oil Prices Tick Lower on Inventory Gain, China Weakness

U.S. oil prices retreated on Wednesday after a weekly report from the Energy Information Administration ("EIA") showed additions in crude and gasoline stockpiles.

On the New York Mercantile Exchange, WTI crude futures lost 0.75% to close at $68.87 a barrel yesterday. Persistently low crude demand from China, the world's largest oil importer, has also been weighing on prices. Recent stimulus measures have yet to drive any significant near-term recovery in oil consumption. A strengthening U.S. dollar exerted additional downward pressure on the commodity.

With oil unable to reclaim $70 per barrel — a healthy enough level for market participants —investors interested in the sector could benefit from focusing on resilient stocks like EOG Resources, ExxonMobil and Devon Energy.

Let's dig deep into EIA’s Weekly Petroleum Status Report for the week ending Nov. 15.

Analyzing the Latest EIA Report

Crude Oil: The federal government’s EIA report revealed that crude inventories edged up 545,000 barrels compared to analysts’ expectations of a 800,000-barrel decrease. The surprise stockpile gain in the world’s biggest oil consumer was largely thanks to a jump in imports and lower refinery demand.

Total domestic stock now stands at 430.3 million barrels, 4% lower than the year-ago figure of 448.1 million barrels and 4% less than the five-year average.

However, on a bullish note, the latest report shows that supplies at the Cushing terminal (the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange) fell 140,000 barrels to 25.1 million barrels.

Meanwhile, the crude supply cover dropped marginally from 26.5 days in the previous week to 26.4 days. In the year-ago period, the supply cover was 29.2 days.

Let’s turn to the products now.

Gasoline: Gasoline supplies increased for the third time in five weeks. The 2.1-million-barrel climb was primarily attributable to a weakness in demand. Analysts had forecast that gasoline inventories would fall 2.5 million barrels. At 208.9 million barrels, the current stock of the most widely used petroleum product is 3.5% less than the year-earlier level, while it is 4% lower than the five-year average range.

Distillate: Distillate fuel supplies (including diesel and heating oil) fell for the eighth week out of the last nine. The 114,000-barrel drop reflected an uptick in exports, to go with lower production. Meanwhile, the market looked for a supply draw of 1.8 million barrels. The recent decreases notwithstanding, current inventories — at 114.3 million barrels — are 8.2% above the year-ago level but 4% lower than the five-year average.

Refinery Rates: Refinery utilization, at 90.2%, fell 1.2% from the prior week.

3 Energy Stocks to Track

Having reviewed the Weekly Petroleum Status Report, investors interested in the energy sector might consider operators like EOG Resources, ExxonMobil and Devon Energy. Each of these stocks currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

EOG Resources is a leading player in the Permian Basin, leveraging its extensive acreage in the prime Northern Delaware region. The company excels in cost control and technological innovation, such as Super Zipper fracs, enhancing operational efficiencies. With a strong focus on maximizing returns through strategic investments and partnerships, EOG continues to drive significant growth and value in the region.

ExxonMobil is one of the largest publicly traded oil and gas companies in the world with operations that span almost every corner of the globe. Spring, TX-based ExxonMobil is fully integrated, meaning it participates in every aspect related to energy — from oil production, to refining and marketing.

Devon Energy is an independent energy company whose oil and gas operations are mainly concentrated in the onshore areas of North America, primarily in the United States. The company’s assets are spread across the key oil assets of Delaware Basin, Eagle Ford, Anadarko Basin and Powder River Basin.

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Zacks Investment Research

U.S. oil prices retreated on Wednesday after a weekly report from the Energy Information Administration ("EIA") showed additions in crude and gasoline stockpiles.

On the New York Mercantile Exchange, WTI crude futures lost 0.75% to close at $68.87 a barrel yesterday. Persistently low crude demand from China, the world's largest oil importer, has also been weighing on prices. Recent stimulus measures have yet to drive any significant near-term recovery in oil consumption. A strengthening U.S. dollar exerted additional downward pressure on the commodity.

With oil unable to reclaim $70 per barrel — a healthy enough level for market participants —investors interested in the sector could benefit from focusing on resilient stocks like EOG Resources EOG, ExxonMobil XOM and Devon Energy DVN.

Let's dig deep into EIA’s Weekly Petroleum Status Report for the week ending Nov. 15.

Analyzing the Latest EIA Report

Crude Oil: The federal government’s EIA report revealed that crude inventories edged up 545,000 barrels compared to analysts’ expectations of a 800,000-barrel decrease. The surprise stockpile gain in the world’s biggest oil consumer was largely thanks to a jump in imports and lower refinery demand.

Total domestic stock now stands at 430.3 million barrels, 4% lower than the year-ago figure of 448.1 million barrels and 4% less than the five-year average.

However, on a bullish note, the latest report shows that supplies at the Cushing terminal (the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange) fell 140,000 barrels to 25.1 million barrels.

Meanwhile, the crude supply cover dropped marginally from 26.5 days in the previous week to 26.4 days. In the year-ago period, the supply cover was 29.2 days.

Let’s turn to the products now.

Gasoline: Gasoline supplies increased for the third time in five weeks. The 2.1-million-barrel climb was primarily attributable to a weakness in demand. Analysts had forecast that gasoline inventories would fall 2.5 million barrels. At 208.9 million barrels, the current stock of the most widely used petroleum product is 3.5% less than the year-earlier level, while it is 4% lower than the five-year average range.

Distillate: Distillate fuel supplies (including diesel and heating oil) fell for the eighth week out of the last nine. The 114,000-barrel drop reflected an uptick in exports, to go with lower production. Meanwhile, the market looked for a supply draw of 1.8 million barrels. The recent decreases notwithstanding, current inventories — at 114.3 million barrels — are 8.2% above the year-ago level but 4% lower than the five-year average.

Refinery Rates: Refinery utilization, at 90.2%, fell 1.2% from the prior week.

3 Energy Stocks to Track

Having reviewed the Weekly Petroleum Status Report, investors interested in the energy sector might consider operators like EOG Resources, ExxonMobil and Devon Energy. Each of these stocks currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

EOG Resources is a leading player in the Permian Basin, leveraging its extensive acreage in the prime Northern Delaware region. The company excels in cost control and technological innovation, such as Super Zipper fracs, enhancing operational efficiencies. With a strong focus on maximizing returns through strategic investments and partnerships, EOG continues to drive significant growth and value in the region.

ExxonMobil is one of the largest publicly traded oil and gas companies in the world with operations that span almost every corner of the globe. Spring, TX-based ExxonMobil is fully integrated, meaning it participates in every aspect related to energy — from oil production, to refining and marketing.

Devon Energy is an independent energy company whose oil and gas operations are mainly concentrated in the onshore areas of North America, primarily in the United States. The company’s assets are spread across the key oil assets of Delaware Basin, Eagle Ford, Anadarko Basin and Powder River Basin.

Zacks Investment Research