Devon Energy (DVN) appears an attractive pick given a noticeable improvement in the company's earnings outlook. The stock has been a strong performer lately, and the momentum might continue with analysts still raising their earnings estimates for the company.
The upward trend in estimate revisions for this oil and gas exploration company reflects growing optimism of analysts on its earnings prospects, which should get reflected in its stock price. After all, empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements. This insight is at the core of our stock rating tool -- the Zacks Rank.
The five-grade Zacks Rank system, which ranges from a Zacks Rank #1 (Strong Buy) to a Zacks Rank #5 (Strong Sell), has an impressive externally-audited track record of outperformance, with Zacks #1 Ranked stocks generating an average annual return of +25% since 2008.
For Devon Energy, strong agreement among the covering analysts in revising earnings estimates upward has resulted in meaningful improvement in consensus estimates for the next quarter and full year.
The chart below shows the evolution of forward 12-month Zacks Consensus EPS estimate:
12 Month EPS
Current-Quarter Estimate Revisions
The earnings estimate of $0.97 per share for the current quarter represents a change of -19.8% from the number reported a year ago.
Over the last 30 days, one estimate has moved higher for Devon Energy while four have gone lower. As a result, the Zacks Consensus Estimate has increased 8.39%.
Current-Year Estimate Revisions
For the full year, the company is expected to earn $5.31 per share, representing a year-over-year change of +35.5%.
The revisions trend for the current year also appears quite promising for Devon Energy, with six estimates moving higher over the past month compared to three negative revisions. The consensus estimate has also received a boost over this time frame, increasing 17.3%.
Favorable Zacks Rank
Thanks to promising estimate revisions, Devon Energy currently carries a Zacks Rank #2 (Buy). The Zacks Rank is a tried-and-tested rating tool that helps investors effectively harness the power of earnings estimate revisions and make the right investment decision.
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Our research shows that stocks with Zacks Rank #1 (Strong Buy) and 2 (Buy) significantly outperform the S&P 500.
Bottom Line
While strong estimate revisions for Devon Energy have attracted decent investments and pushed the stock 5.1% higher over the past four weeks, further upside may still be left in the stock. So, you may consider adding it to your portfolio right away.
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Devon Energy Corporation (DVN): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).