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Devon Energy Corp DVN

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Relaunching Coverage of Devon With $18 Fair Value Estimate

Analyst Note

| Dave Meats, CFA |

We are relaunching coverage of U.S. oil producer Devon Energy with a fair value  estimate of $18 per share. The stock has been on a tear in the last couple of weeks, driven by a wave of positive news about COVID-19 vaccines. In fact, since Pfizer's Nov. 9 announcement, Devon shares have already gained almost 50%. But we still see further upside. Vaccine progress increases the probability that the virus can be beaten, paving the way for a return to normality with a near-complete recovery in crude consumption. But unless drilling activity rises from bare minimum levels, the supply response will be insufficient and the glut will become a shortage. Significantly higher crude prices are necessary to incentivize this, but the market is still extrapolating bottom-of-the-cycle crude prices to infinity. As a result, most energy companies, including Devon, are undervalued.

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Company Profile

Business Description

Devon Energy, based in Oklahoma City, is one of the largest independent exploration and production companies in North America. The firm's asset base is spread throughout onshore North America and includes exposure to the Delaware, STACK, Eagle Ford, Powder River Basin, and Bakken plays. At year-end 2019, Devon's proven reserves totaled 589 million barrels of oil equivalent, with net production of 323 mboe/d. Oil and natural gas liquids made up 69% of production and 62% of proven reserves.

333 West Sheridan Avenue
Oklahoma, OK, 73102-5015
T +1 405 235-3611
Sector Energy
Industry Oil & Gas E&P
Most Recent Earnings Sep 30, 2020
Fiscal Year End Dec 31, 2020
Stock Type Distressed
Employees 1,800