Popular energy companies Devon Energy Corporation (DVN) and Berry Corporation (BRY) develop and produces oil and natural gas in the United States.
With economies opening up in the post-pandemic era, oil and gas production is expected to surge in the upcoming terms. According to U.S. Energy Information Administration, crude oil production in the United States will average 12.4 million barrels per day (b/d) in 2023 and 12.8 million b/d in 2024, surpassing the previous record of 12.3 million b/d in 2019.
Moreover, demand for oil and gas remains robust. The Global Oil and Gas EPC Market is projected to grow at a CAGR of 7.2% until 2029. Also, investors’ interest in energy stocks is evident from the Energy Select Sector SPDR ETF’s (XLE) 13.7% returns over the past six months.
Quality energy stocks DVN and BRY are expected to benefit from the industry tailwinds.
DVN has lost marginally over the past month, while BRY has lost 10.3%. However, DVN has gained marginally over the past six months, while BRY has gained 14.7%.
Which stock is a buy? 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. DVN expects this acquisition to help expand its capabilities.
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 increase 58.7% year-over-year to $19.37 billion for the yet-to-be-reported fiscal year 2022. However, its revenue is expected to decrease 4.7% year-over-year to $18.46 billion for the current fiscal year 2023. Its EPS is expected to decline marginally year-over-year to $8.34 for the same period.
On the other hand, BRY’s revenue is expected to increase 49.5% year-over-year to $814.77 million for the yet-to-be-reported fiscal year 2022. However, its revenue is expected to decline 4.1% year-over-year to $781.47 million for the ongoing fiscal year 2023. Its EPS is expected to decrease 26.8% year-over-year to $1.42 for the same period.
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 significantly lower than BRY’s 16.23%.
Valuation
In terms of forward EV/Sales, DVN’s 2.48x is higher than BRY’s 1.31x. Its forward P/E of 7.19x is 85.8% higher than BRY’s 3.87x. Also, DVN’s forward EV/EBITDA of 4.94x compared with BRY’s 2.78x.
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.
On the other hand, DVN has a D grade for Growth, consistent with its bleak financials in the latest reported quarter.
In addition, BRY has an A grade for Value. Its forward EV/EBITDA of 2.78x is 48.7% lower than the industry average of 5.42x, and its forward Price/Sales of 0.86x is 37.6% lower than the industry average of 1.38x.
On the other hand, DVN has a C grade for Value. Its forward EV/EBITDA of 4.94x is 8.9% lower than the industry average. However, its forward Price/Sales of 2.19x is 58.9% higher than the industry average.
Of the 93-stock Energy – Oil & Gas industry, BRY is ranked #5, 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
The oil and gas industry is expected to thrive amid robust demand. 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.
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BRY shares were unchanged in premarket trading Tuesday. Year-to-date, BRY has gained 10.25%, versus a 4.75% 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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