Devon Energy

Methodology

Devon Energy's oil and gas production earnings fluctuate dramatically with commodity prices, requiring normalized assumptions for meaningful fair value calculations. Current earnings at spot oil and gas prices distort intrinsic value assessments. The method works best using mid-cycle commodity price assumptions ($65-75 WTI, $3.50-4.50 natural gas) rather than current market conditions.

Methodology

Devon typically trades at very low PEG ratios (often below 0.5x) during commodity upswings, reflecting market skepticism about earnings sustainability at elevated prices. Production growth remains modest as capital discipline prioritizes returns over volume. PEG misleads for E&P companies because earnings volatility reflects commodity price changes rather than operational improvements.

Methodology

Devon pays a substantial fixed plus variable dividend yielding 6-10% depending on commodity prices, making PEGY significantly more attractive than PEG. The company's shareholder return framework prioritizes cash distributions over production growth. Total shareholder yield can exceed 12-15% in strong commodity environments, making yield-adjusted valuations far more relevant than growth metrics.