At a conference in Dallas last week, Devon Energy said it plans to continue with its strategy of acquisition and disposition of assets. The firm believes it can allocate 60% of free cash flow to shareholder returns and 40% to investments in long-term growth. Over the past 12 months, Devon has reported free cash flow of about $5.52 billion. Of that total, $1.2 billion was returned to shareholders in share buybacks, $309 million in dividends on common and preferred stock and $2.07 billion in variable dividends. That is a return to shareholders of around 65% of free cash flow.
Analysts remain bullish on the stock, with 16 of 30 having a Buy or Strong Buy rating. Another 13 have Hold ratings. At a share price of around $76.00, the upside potential based on a median price target of $80.00 is 5.3%. At the high target of $109.00, the upside potential is 43.4%.
Consensus estimates call for third-quarter revenue of $4.79 billion, down 14.9% sequentially but 38.0% higher year over year. Adjusted EPS are forecast at $2.13, down 17.8% sequentially and up 97.2% year over year. For the full 2022 fiscal year, Devon is forecast to post EPS of $9.04, up 156.2%, on revenue of $20.06 billion, up 64.4%.
Devon’s stock trades at about 8.4 times expected 2022 EPS, 7.8 times estimated 2023 earnings of $9.75 and 9.2 times estimated 2024 earnings of $8.30 per share. The stock’s 52-week range is $35.55 to $79.40. Devon pays an annualized dividend of $6.08 (yield of 8.16%). Total shareholder return for the past year was 102.2%.
Energy Transfer
Natural gas pipeline and infrastructure company Energy Transfer L.P. (NYSE: ET) has added about 29.4% to its share price over the past 12 months. For the year to date, the common units are up more than 52%.
Like many pipeline operators, Energy Transfer is a master limited partnership (MLP) that pays a generous distribution to unitholders and is mostly shielded from price movements because the bulk of the company’s capacity is contracted. While the company is targeting a near tripling of cash distributions to investors, it is worth remembering that MLPs tend to grow revenue by expanding. That means more investment and borrowing.
Analysts are solidly bullish on Energy Transfer, with all 17 brokerages covering the company ratings of Buy or Strong Buy. At a share price of around $12.50, the upside potential based on a median price target of $16.00 is 28%. At the high price target of $21.00, the upside potential is 68%.
For the third quarter, analysts expect the company to report revenue of $24.04 billion, down 7.3% sequentially and up 44.3% year over year. Adjusted EPS are expected to come in at $0.26, down 33.1% sequentially and up 30.0% year over year. For the full 2022 fiscal year, EPS is forecast at $1.35, down 29.5%, on sales of $94.28 billion, up almost 40%.
The common units trade at about 9.3 times expected 2022 EPS, 8.7 times estimated 2023 earnings of $1.44 and 9.8 times estimated 2024 earnings of $1.28 per share. Energy Transfer’s 52-week range is $7.96 to $12.57. The company pays an annual distribution of $1.06 (yield of 8.46%). Total shareholder return for the past year was 39%.
Originally published at 24/7 Wall St.
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