DVN Devon Energy
Cyclical E&P with no moat; market prices a friendlier oil cycle than fundamentals support.
The story
Devon is a Permian-weighted E&P whose revenue and margins track oil and gas prices more than any structural advantage. Margins have compressed from 42% to 24% as the commodity cycle normalized, and the 5-year revenue CAGR is slightly negative—this is a cyclical maturity story, not a growth franchise. The market price implies a sustained commodity uplift that the cycle has not delivered.
Keeping all prior drivers unchanged: the story has not shifted—Devon remains a cyclical E&P with no durable moat, and recent news is neutral. Only sales-to-capital moves from 0.70 to 0.82 to reflect the actual TTM ratio, a factual correction rather than a story change. Target margin of 20% is conservative through-cycle; terminal growth at 0% respects finite hydrocarbon economics.
Value drivers
| Revenue growth (Y1) | 4.0% |
| Terminal growth | 0.0% |
| Forecast horizon | 7y |
| Target operating margin | 20.0% |
| Years to target margin | 5 |
| Sales-to-capital | 0.82 |
| Beta | 1.15 |
| Failure probability | 3.0% |
| Cost of capital (WACC) | 9.3% |
| Terminal WACC | 8.7% |
Valuation bridge
| PV of explicit FCFF | 15.04B |
| PV of terminal value | 21.56B |
| Equity value | 28.76B |
| ÷ shares → per share | $26.14 |
News
neutral +0.10 · 8 articles
- Permian Resources (PR) Up 17.1% Since Last Earnings Report: Can It Continue?
- Goldman’s Energy Dividend Picks: Why Devon and HF Sinclair Still Offer Upside
- Devon Energy (DVN) Up 16.5% Since Last Earnings Report: Can It Continue?
- Here Are Thursday’s Top Wall Street Analyst Research Calls: Broadcom, Deere & Company, Dell Technologies, Devon Energy, Moderna, Permian Resources, PG&E, Thermo Fisher, Viper Energy, and More
- Can Par Pacific's Stronger Balance Sheet Fuel Its Next Growth Phase?
- Why ExxonMobil, Chevron, SLB, and Other Energy Stocks Climbed Today
- Stocks Decline to End August as War Fears Persist
- Devon Energy vs. ConocoPhillips: Which Oil Stock Is the Better Buy?
Projected free cash flow to the firm
| Yr | Revenue | Growth | Margin | NOPAT | Reinvest | FCFF | PV |
|---|---|---|---|---|---|---|---|
| 1 | 20.46B | 4.0% | 23.2% | 3.67B | 959.80M | 2.71B | 2.48B |
| 2 | 21.15B | 3.3% | 22.4% | 3.66B | 831.83M | 2.83B | 2.37B |
| 3 | 21.71B | 2.7% | 21.6% | 3.62B | 687.65M | 2.94B | 2.25B |
| 4 | 22.14B | 2.0% | 20.8% | 3.56B | 529.49M | 3.03B | 2.13B |
| 5 | 22.44B | 1.3% | 20.0% | 3.47B | 360.05M | 3.11B | 2.00B |
| 6 | 22.59B | 0.7% | 20.0% | 3.49B | 182.43M | 3.31B | 1.94B |
| 7 | 22.59B | 0.0% | 20.0% | 3.49B | 0 | 3.49B | 1.88B |
Key risks
- Oil price downturn compresses margins below 20% target
- High capex intensity limits FCF conversion at lower prices
- Decline rates in mature Permian acreage require accelerating reinvestment
Catalysts
- Sustained oil prices above $75/bbl lifting realized margins
- Debt reduction improving financial flexibility through cycle
- Operational efficiency gains in Permian drilling