Devon Energy Corporation (DVN) is scheduled to report third-quarter 2014 results on Nov 4 after the market close. Earnings in the last quarter were in line with the Zacks Consensus Estimate. Let’s see how things are shaping up for the third quarter.
Factors to Consider This Quarter
Oklahoma City, OK-based Devon Energy is an independent energy company primarily engaged in exploration, development and production of oil and natural gas. Besides the exploration and production (E&P) business, Devon also has a presence in marketing and midstream operations. Devon has three reporting segments – U.S., Canada and EnLink.
Devon follows a systematic inorganic growth strategy to expand its operations. The company combined its midstream assets with Crosstex to form a midstream company called EnLink Midstream. The shale boom in the U.S. has driven the demand for midstream operations to unprecedented levels. Devon’s shift of focus to create a large midstream business will help the company gain access to stable revenue streams.
Devon Energy shifted its focus on oil from natural gas over the last few years. The oil focused strategy was helping the company in a high oil price environment. However, the global supply of crude oil is mounting, thanks to increasing production in the U.S. and the Middle East. Consequently, the declining oil price trend is expected to continue for the upcoming quarters, impacting Devon’s margins.
Earnings Whispers?
Our proven model does not conclusively show that Devon Energy will beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to be able to beat consensus estimates. That is not the case here as you will see below.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -2.36%. This is because the Most Accurate Estimate is at $1.24 per share and the Zacks Consensus Estimate is at $1.27 per share.
Zacks Rank: Devon’s Zacks Rank #3 when combined with -2.36% ESP makes an earnings prediction difficult.
We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are some stocks in the oil and gas space you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this season:
Cobalt International Energy, Inc. (CIE) has an earnings ESP of +11.11% and a Zacks Rank #1.
EOG Resources, Inc. (EOG) has an earnings ESP of +0.78% and a Zacks Rank #3.
Crescent Point Energy Corp. (CPG) has an earnings ESP of +20.93% and a Zacks Rank #3.
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