Energy stock Devon Energy Corporation (DVN) beat its revenue estimates by 12.8% and EPS estimates by 2.4% in its 2022 third quarter ended September 30, 2022. Its revenue came in at $5.43 billion, and its EPS came in at $2.18.

According to Rick Muncrief, president, and CEO, "Devon's third-quarter performance demonstrated the flexibility of our cash-return business model to create value for shareholders in multiple ways."

However, several analysts have downgraded the stock in the recent past. JPMorgan Chase & Co. (JPM) downgraded DVN from an "overweight" rating to a "neutral" rating, while Morgan Stanley (MS) lowered their price target on DVN from $69.00 to $67.00.

DVN has gained 58.2% year-to-date and 73.4% over the past year to close the last trading session at $68.28. However, it has lost 11.7% over the past month.

Here is what could shape DVN's performance in the near term:

Low Gas Price Amid Declining Demand

With the advent of winter, travel demand has relatively declined in the U.S. Moreover, continued lockdowns in China have caused a further downtrend in aggregate demand. Amid deteriorating demand, gas and crude oil prices have witnessed quite a freefall.

According to AAA, the U.S. national average price for a gallon of gas stands at $3.47, down more than 30% from mid-June peak levels. This might not bode well for DVN.

Weakening Balance Sheet

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.

Mixed Valuations

DVN's forward EV/EBITDA of 5.00x is 9.6% lower than the industry average of 5.54x. Its forward P/E of 7.30x is 11.1% lower than the industry average of 8.22x.

However, its forward EV/Sales of 2.50x is 26.3% higher than the industry average of 1.98x. Also, its forward Price/Sales of 2.21x is 60.2% higher than the industry average of 1.38x.

POWR Ratings Reflect Bleak Prospects

DVN has an overall rating of D, equating to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. DVN has a D grade for Growth and Stability, in sync with its shrinking balance sheet and a beta of 2.47, respectively.

In the 92-stock Energy - Oil & Gas industry, DVN is ranked #86.

Click here for the additional POWR Ratings for DVN (Value, Momentum, Sentiment, Quality).

View all the top stocks in the Energy – Oil & Gas industry here.

Bottom Line

DVN's cash balance declined dramatically for the 2022 third quarter. Moreover, industrial headwinds could impact the company's near-term growth. It has lost 14% since hitting its 52-week high of $79.40 on June 9, 2022. Therefore, DVN might be best avoided.

How Does Devon Energy Corporation (DVN) Stack up Against Its Peers?

While DVN has an overall POWR Rating of D, one might consider looking at its industry peers, PrimeEnergy Resources Corporation (PNRG), Marathon Petroleum Corporation (MPC), and PBF Energy Inc. (PBF), which have an overall A (Strong Buy) rating.

DVN shares were trading at $69.19 per share on Friday afternoon, up $0.91 (+1.33%). Year-to-date, DVN has gained 66.09%, versus a -13.63% rise in the benchmark S&P 500 index during the same period.

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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