On Feb 25, 2016, we issued an updated research report on Devon Energy Corporation DVN. The persistent softness in commodity prices, highly competitive oil and gas industry, extensive regulatory pressure and operational risks could have an adverse impact on Devon’s financial performance. However, Devon Energy’s diversified portfolio of assets, cost-reduction initiatives and stable liquidity base might counter these headwinds.

Devon Energy reported fourth-quarter 2015 adjusted earnings per share of 77 cents, exceeding the Zacks Consensus Estimate of 74 cents by 4.1% but declining considerably from 83 cents earned in the year-ago quarter.

The downward spiral in global oil prices could significantly impact the company’s operating results, as it depends on the sale of crude oil for a large portion of its revenues. In the fourth quarter of 2015, oil, gas and NGL along with oil, gas and NGL derivatives contributed nearly 42% of total revenues while realized prices for oil in the fourth quarter, including cash settlements, declined 23.3% year over year to $29.44 per boe.

Also, Devon Energy operates in a highly competitive oil and gas industry which might limit its capacity to apply for new drilling rights or acquire properties.

Nonetheless, Devon’s deep and diversified portfolio, primarily composed of unconventional resources, holds significant long-term growth potential. The company has resorted to cost-saving initiatives to support its margins in this difficult commodity price environment. It was able to lower its field level operating costs by nearly $400 million year over year in 2015. The company aims to continue its cost saving initiative in 2016 as well. It expects to achieve cost savings of $800 million in 2016.

Zacks Rank

Devon Energy carries a Zacks Rank #4 (Sell). Some favorably ranked stocks in the Oil-Us Exploration& Production space are Antero Resources Corporation AR, Contango Oil & Gas Company MCF and Halcón Resources Corporation HK, all carrying a Zacks Rank #2 (Buy).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
DEVON ENERGY (DVN): Free Stock Analysis Report
 
HALCON RESOURCS (HK): Free Stock Analysis Report
 
ANTERO RESOURCE (AR): Free Stock Analysis Report
 
CONTANGO OIL&GS (MCF): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research