Devon Energy Downgraded By Oppenheimer, Earnings Weakness Is 'Masked'

In a report published Wednesday, Oppenheimer analyst Fadel Gheit downgraded the rating on Devon Energy Corp DVN from Outperform to Perform, while removing the price target of $70, saying that the company's weak results are masked by hedging gains. Devon Energy reported its 1Q15 adjusted earnings at $89M, or $0.22 per share, missing the consensus estimate of $0.26E and down 84 percent YoY and 74 percent QoQ. Compared with 1Q14, the company's earnings were impacted by 21 percent lower realization and a 1 percent production decline. Compares with the previous quarter, 18 percent lower realization significantly exceeded the benefit of 3 percent production growth. Devon Energy has guided to production in the 660-688 mboed range for 2Q15 and 649-684 mboed for the full year, with corresponding CAPEX of $1.1-1.25B in 2Q15 and $4.51-4.91B for the full year. The company expects 2015 midpoint LOE guidance to decline to ~$9.30/boe, from $10/boe previously. In the report Oppenheimer noted, "Despite higher benchmark strip prices, continued production growth, cost savings and efficiency improvements, we expect 2016 earnings to be significantly below the 2015 level, which benefits from hedging gains. We expect DVN to face cash flow deficits of $0.9B this year and $1.9B next year."