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DVN's FWD P/E valuations of 9.02x and FWD Price/ Cash Flow valuations of 4.45x remain discounted compared to its oil/ gas peers, such as Exxon Mobil (XOM) at 12.19x/ 7.77x, Chevron Corporation (CVX) at 12.20x/ 7.27x, and Occidental Petroleum (OXY) at 16.15x/ 5x, respectively.

While DVN has admittedly failed to close multiple acquisitions over the last twelve months, we concur with the management's "price discipline as an acquirer," since it allows the company to avoid paying the premium observed during the sector's consolidation party thus far.

https://seekingalpha.com/article/4699677-devons-un...

Currently, Devon Energy can use the large cash flows produced by the higher energy prices to repurchase shares after paying solid dividends. Historically, oil companies have only focused on paying large fixed dividends and the energy companies have even shifted capital returns to paying variable dividends to restrict the amount tied to dividends.

The diluted share count is down to only 632 million shares from 647 million for Q1 '23. Devon has reduced the share count by 15 million over the last year while still paying a fixed dividend of $0.22, equivalent to a yield of 1.8% with a variable dividend of $0.13 pushing the annualized dividend yield to 2.8%.

https://seekingalpha.com/article/4694135-devon-ene...

Does anyone here own Devon or looked into buying it? I like their capital allocation and acquisition discipline. It is very unusual for a US company to have a variable dividend policy (much more common in Europe), so it is not being rewarded for their policy of returning 70% of cash flow. It makes sense to prioritize share purchases over increasing dividends at these share prices.

I've own DVN for a long time, riding it high and riding it down. I recently (starting last year) started to rebuild a more substantial position in it due to attractive valuation, disciplined investment and dividend strategy, and an overall thesis that energy is currently underappreciated in the market. I am not knowledgeable about the different assets they hold relative to other exploration companies and how to assess their potential or quality, but I have seen them long enough to understand their strategy approach. They aren't really competitors or comparable to large integrated firms like XOM, CVX, or OXY. They are much more small scale operator with flexibility to turn on additional production based on pricing. My understanding is they hold attractive assets placed at different points on the cost curve and so have a good ability to take advantage of shifts in pricing.

Oil is volatile enough in pricing that no operator can really be insulated from that, but they seem like an operator that is good and improving in their discipline. They introduced (one of the first), a large variable dividend policy which kept them disciplined about returning cash to shareholders rather than holding it internally which might have tempted them into making undisciplined investments because they happen to have cash. Around the end of last year, the management signaled that they think their shares are undervalued enough that instead of continuing their large routine variable dividend approach, they are going to shift to share repurchases.

That assessment is part of why I decided to increase my holdings, combined with the fact that (I hope) the giant gravitational pull of investment dollars into AI has left valuations in places like energy so low. That has got to reverse at some point no? In the meantime, they continue to pay out a good dividend and continue to use excess capital for stock repurchases. All sound strategic approaches I think to managing through the current environment.

They made a cash + stock acquisition after being outbid on several recent ones. Management seems bullish, but then they always do.

https://seekingalpha.com/news/4122532-devon-energy...

Devon Energy (NYSE:DVN) failed in attempts to buy at least three of its oil and gas producing peers in the last 12 months because higher drilling costs and production issues made its stock less attractive to acquisition targets, Reuters reported Thursday.

Acquisition targets were said to have been skeptical about the value of Devon's (DVN) stock, which has lagged the S&P 500 Energy index by 16 percentage points in the last 12 months.

The weakness in Devon (DVN) shares placed the company at a disadvantage to rival bidders, Andrew Dittmar, principal analyst at energy consultancy Enverus, told Reuters.

The failure to bag a deal also is a function of Devon's (DVN) price discipline as an acquirer, as well as heightened competition for assets in the sector; Enverus noted that Marathon Oil and Enerplus sold at an average premium to their undisturbed share price that was roughly three percentage points over the average premium paid for U.S. publicly listed oil and gas companies since the start of 2023.

https://seekingalpha.com/news/4113705-devon-missed...

Even though they failed on some earlier acquisitions, I as a shareholder, like their price discipline as an acquirer. Hopefully the deal to acquire assets from Grayson Mill wil1 turn out to have been better than the ones they declined to buy.

Immediately accretive to financial metrics – The transaction is immediately accretive to Devon’s key per-share financial measures, including earnings, cash flow, free cash flow and net asset value. The assets were acquired at less than 4-times EBITDAX, with an estimated free cash flow yield of 15 percent at an $80 WTI oil price.

Improves outlook for return of capital to shareholders – Due to the accretive nature of this transaction to free cash flow, Devon’s board of directors has expanded its share-repurchase authorization by 67 percent to $5 billion through mid-year 2026. The company also expects this acquisition to be accretive to the company’s dividend payout in 2025 and beyond.

Maintains strong financial position – The transaction structure supports Devon retaining its strong investment-grade credit ratings with a projected net debt-to-EBITDAX ratio of approximately 1.0 times upon closing. The company plans to improve its financial strength by allocating up to 30 percent of its annual free cash flow towards reducing $2.5 billion of debt over the next two years.


https://www.morningstar.com/news/globe-newswire/91...

rnam,

Thanks for sharing some of the commentary on the acquisition today. I took advantage of the immediate price decline to buy more shares of DVN. I read this as a value accretive event as it directly addresses production growth, which has been hard for DVN as of late and has held back their valuation, without harming industry structure or adding supply overall. Deal seems fine near term in terms of cash resources and mitigating dilution, and assuming they have exercised the same value oriented discipline that led them to lose out on prior deals, they likely bought this asset with a margin of safety. Seems like a strong win to me, especially if they have a specific near term plan to bring down debt and share count. Pretty excited to see this deal happen. Now we just need to avoid falling into a recession that drops the price of oil.

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