Bill Nygren Comments on Devon Energy
Devon Energy (DVN-$58)Devon (DVN) is a North American oil and natural gas exploration and production company. The stock has been a poor performer, down from a high of $94 last year and an all-time high of $127 in 2008. With nearly 60% of its reserves in natural gas, Devon is widely perceived to be a gas company, and its stock price has traded down with natural gas prices. However, 80% of Devon’s revenues and over 80% of our business value estimate stem from the company’s oil and liquids business. Based on our estimates, the stock is now trading at just over half of its 2013 asset value. And we are not assuming any oil price recovery in our numbers. An additional reason we are attracted to Devon is the way management allocates capital. It seems that most oil and gas managements have a “bigger is better” mentality. Devon instead focuses on per-share value. In the past two years, Devon has used excess cash to reduce its share base by 10%. Selling at less than 10x expected earnings, at half of estimated asset value, and with a history of repurchasing its shares, we are pleased to add Devon to our portfolio.