What to Look For in Devon Energy Earnings

Independent oil and gas producer Devon Energy Corp. (NYSE: DVN) will report first-quarter earnings after markets close Tuesday. The company is expected to post a loss per share of $0.64 on revenues of $2.57 billion. In the first quarter of 2015 Devon reported earnings per share of $0.22 and sales of $3.26 billion.

The company’s fourth-quarter earnings report in mid-February was nothing short of a disaster. Devon cut its dividend by 75% and its capital budget by the same amount. It also priced and issued an upsized offering of 69 million new shares at $18.75, a discount of about 7.8% to the previous day’s closing price.

At the same time, Devon said it would lay off about 20% of its workforce in the first quarter, raising its savings due to cost cuts to $400 million to $500 million, including savings from a workforce reduction in 2015 and cuts to its administrative spending. Last month Devon sold $200 million worth of non-core assets in northern Oklahoma to White Star Petroleum. Devon sold $2.3 billion in non-core assets to Linn Energy and another $2.7 billion to Canadian Natural Resources in 2014.
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The capital infusions and the cost savings combined with higher crude oil prices have doubled Devon’s share price from a 52-week low of $18.07 to a recent high of $37.18. The drop in crude prices over the past four trading days has taken back about $4 of that gain.

So what do might we expect from the impending report? Something other than additional cost cutting to pump up margins would be the best thing. Because it won’t come from higher crude oil prices, that means that it has to come from asset sales.

When analysts weighed in on Devon  following its fourth-quarter report, many kept their Buy (or equivalent) ratings even though some cut their price targets. The high price target right now is $50, and the consensus target is $34.95.

With crude trading down about 2.5%, Devon’s shares traded down about 4.6% in the mid-afternoon on Tuesday, at $32.95 in a 52-week range of $18.08 to $70.48.