Will Devon Energy Beat Its 1Q16 Earnings Expectations?
Devon Energy’s stock price action
Declining crude oil and natural gas prices over the last two years have been dragging the entire upstream sector into a prolonged downtrend. Devon Energy (DVN) was no exception. However, since February 2016, as seen in the below chart, Devon Energy’s stock price is making a pattern of higher highs and higher lows.
Devon Energy’s stock price performance leading into 1Q16 earnings
Recently, DVN has shown excellent relative strength when compared with other crude oil and natural gas producers. In the last two months, Devon Energy’s stock price has increased by ~91%.
Compare this with the SPDR S&P Oil and Gas Exploration & Production ETF (XOP), which is up by ~49% during same period. XOP invests at least 80% of its total assets in oil and gas exploration companies whereas the ETF ISE-Reverse Natural Gas Index ETF (FCG) invests in natural gas producers.
For 2016, Devon Energy is underperforming larger upstream companies from the S&P 500 (SPY). For 2016, DVN is up by ~11%. Larger oil and gas producers Southwestern Energy (SWN), Murphy Oil (MUR), EOG Resources (EOG), and Occidental Petroleum (OXY) are up by ~73%, ~53%, ~15%, and ~13%, respectively.
Devon Energy’s stock price behavior after past earnings
Devon Energy (DVN) reported its 4Q15 earnings after the market closed on February 16, 2016. In 4Q15, excluding the one-time items, DVN reported a profit of $0.77 per share, $0.06 better than the consensus for a profit of $0.71 per share. Following the earnings release, better-than-expected earnings saw Devon Energy’s stock price decrease by ~14% in the three sessions.
A contrarian reaction was observed after 2Q15 earnings when Devon Energy’s stock price decreased by ~25% in three weeks, even after beating the consensus earnings estimates by $0.35 per share.
DVN’s 3Q15 post-earnings reaction was positive when Devon Energy’s stock price increased by ~6% in five sessions after beating the consensus earnings estimates by $0.24 per share. Considering the magnitude of the beat, the reaction was still muted.
For its 1Q15 earnings, Devon Energy’s stock price reacted negatively with a decline of ~3% in two weeks, mainly due to the $0.03 per share miss on the earnings estimates.
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