Devon Energy Corporation (DVN) explores, develops, and produces oil, natural gas, and natural gas liquids in the United States. It operates approximately 5,134 gross wells.
On the other hand, Berry Corporation (BRY) also develops and produces conventional oil reserves in the western United States. It operates in two segments, Development and Production; and Well Servicing and Abandonment.
Energy prices are expected to surge in 2023, which could bode well for the industry. According to Patrick De Haan, head of petroleum analysis at GasBuddy, the national average gas price could hit $4 a gallon in most major U.S. cities as early as May 2023. Moreover, oil prices might go as high as $121 in 2023.
Moreover, demand for oil and gas remains robust. The oil and gas infrastructure market is expected to grow at a CAGR of 6.6% from 2022 to 2030. Investors' interest in energy stocks is evident from the Energy Select Sector SPDR ETF's (XLE) 21.5% returns over the past three months.
Quality energy stocks DVN and BRY are expected to benefit from the industry tailwinds.
However, DVN has lost 10.2% over the past month, while BRY has lost 11.2%. DVN has gained 2.3% over the past three months, while BRY has gained 11.6%. But which of these stocks is the better pick now? Let's find out.
Latest Developments
On September 28, 2022, DVN announced the complete acquisition of Validus Energy, an Eagle Ford operator, for a total cash consideration of $1.80 billion. However, the acquisition is not expected to yield any immediate benefits for DVN.
On the other hand, on November 2, 2022, Trem Smith, BRY's Chair and CEO, said, "We are on track to return to our shareholders the equivalent of our current market capitalization of approximately $700 million in just three-plus years."
Recent Financial Results
DVN's cash, cash equivalents, and restricted cash came in at $1.31 billion for the period ended September 30, 2022, compared to $2.27 billion for the period ended December 31, 2021.
Its total current assets came in at $4.01 billion, compared to $4.25 billion for the same period. Moreover, its total current liabilities came in at $3.46 billion, compared to $3.09 billion.
BRY's total revenues and other came in at $376.45 million for the third quarter that ended September 30, 2022, up 162.5% year-over-year. Its adjusted net income came in at $45.52 million, up 294.5% year-over-year. Also, its adjusted EPS came in at $0.55, up 292.9% year-over-year.
Past and Expected Financial Performance
DVN's revenue is expected to decrease marginally year-over-year to $20.02 billion in 2023. However, its EPS is expected to increase marginally year-over-year to $8.79 for the same period. Moreover, its EPS is expected to increase by 31.3% per annum for the next five years.
On the other hand, BRY's revenue is expected to increase 37.6% year-over-year to $749.75 million for the yet-to-be-reported fiscal year 2022, while its EPS is expected to rise 675.2% year-over-year to $1.94 for the same period. Moreover, its EPS is expected to grow 15% per annum for the next five years. BRY's revenue is expected to decrease 5.9% year-over-year in 2023.
Profitability
DVN's gross profit margin of 60.07% is higher than BRY's 52.25%. Moreover, its EBITDA and net income margins of 55.26% and 33.64% compare with BRY's 41.61% and 20.07%, respectively.
However, DVN's levered FCF margin of 6.89% is lower than BRY's 16.23%.
Valuation
In terms of forward EV/Sales, DVN's 2.29x is higher than BRY's 1.30x. Its forward P/E of 6.57x is 106% higher than BRY's 3.19x. Also, DVN's forward EV/EBITDA of 4.56x compared with BRY's 2.54x.
Thus, BRY is relatively more affordable.
POWR Ratings
BRY has an overall rating of B, equating to Buy in our proprietary POWR Ratings system. On the other hand, DVN has an overall rating of D, which translates to Sell. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
BRY has a B grade for Growth, in sync with its solid financials in the latest reported quarter. In contrast, DVN has a D grade for Growth, consistent with its bleak financials.
In addition, BRY has an A grade for Value. Its forward EV/EBITDA of 2.54x is 51.6% lower than the industry average of 5.24x, and its forward Price/Sales of 0.82x is 38% lower than the industry average of 1.32x.
On the other hand, DVN has a C grade for Value. Its forward EV/EBITDA of 4.56x is 12.9% lower than the industry average of 5.24x, while its forward Price/Sales of 2.01x is 52.1% higher than the industry average of 1.32x.
Of the 93-stock Energy – Oil & Gas industry, BRY is ranked #7, while DVN is ranked #87.
Beyond what we've stated above, we have also rated the stocks for Momentum, Stability, Sentiment, and Quality. Click here to view BRY ratings. Get all DVN ratings here.
The Winner
Energy prices are expected to increase again in 2023. Given the favorable prospects of the industry, quality energy stocks BRY and DVN are slated to get a substantial boost. However, BRY's solid growth and attractive valuations make it the better buy here.
Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Energy – Oil & Gas industry here.
DVN shares were trading at $60.80 per share on Tuesday morning, down $0.71 (-1.15%). Year-to-date, DVN has declined -1.15%, versus a 0.35% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
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