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Devon Energy Announces $1.8B Buyout; How Will It Affect Earnings?

Story Highlights

Devon Energy’s acquisition of Validus Energy should boost DVN’s net income, free cash flow, as well as other financial metrics. Retail investors and analysts alike are bullish on the stock.

Hydrocarbon exploration energy company Devon Energy (NYSE: DVN) recently revealed that it will be fortifying its presence in the Eagle Ford Basin with a $1.8 billion acquisition of Validus Energy, an operator in the region. The cash deal is expected to close in Q3 2022 and should boost Devon’s profitability. Following the news, DVN stock closed 2.6% higher yesterday.

The Deal Appears to be Accretive for Devon Energy

With the impending buyout, Devon expects its earnings, cash flow, and net asset value to rise. Further, because of the rise in free cash flow, the company expects to raise its variable dividend by up to 10% on a per-share basis. Presently, the company’s dividend yield of 10.8% is much higher than the S&P 500’s (SPX) dividend yield of 1.54%.

Operationally, the buyout will allow Devon to more than double its net acreage position in the Eagle Ford Basin from 40,000 net acres to 82,000 net acres. Moreover, Devon management believes that the production capacity of Validus Energy will increase to 40,000 Boe (Barrels of oil equivalent) per day over the next year from 35,000 Boe per day, ensuring more free cash flow generation in the coming years for the company.

Is DVN Stock a Buy?

Overall, the consensus among analysts for Devon stock is a Moderate Buy based on 11 Buys and six Holds. The average DVN price target of $81.76 implies upside potential of 38.4% from current levels. Shares have gained ~123% over the past year.

With rising share prices due to economic tailwinds and a high dividend yield, Devon remains a favorite with top investors as they continue to load up on the shares of the company.

TipRanks’ Stock Investors tool shows that top investors currently have a “Very Positive” stance on DVN. Further, 12.7% of the top portfolios tracked by TipRanks increased their exposure to DVN stock over the past 30 days.

Conclusion: The Acquisition Should Bode Well for Devon Energy

Energy prices are likely to remain at elevated levels due to geopolitical tensions for some time. This acquisition is expected to help the company take advantage of that, as the buyout enhances Devon’s presence in the high-producing Eagle Ford basin, which will allow it to thrive operationally. Financially too, the deal appears to be a sound one, with improvements expected in both net income and free cash flow.


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