Stock Analysis on Net
Stock Analysis on Net

Devon Energy Corp. (NYSE:DVN)

This company has been moved to the archive! The financial data has not been updated since November 8, 2023.

Present Value of Free Cash Flow to the Firm (FCFF)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

Devon Energy Corp., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 21.86%
01 FCFF0 6,277
1 FCFF1 6,214 = 6,277 × (1 + -0.99%) 5,099
2 FCFF2 6,218 = 6,214 × (1 + 0.07%) 4,187
3 FCFF3 6,288 = 6,218 × (1 + 1.12%) 3,475
4 FCFF4 6,425 = 6,288 × (1 + 2.18%) 2,914
5 FCFF5 6,633 = 6,425 × (1 + 3.24%) 2,468
5 Terminal value (TV5) 36,772 = 6,633 × (1 + 3.24%) ÷ (21.86% – 3.24%) 13,683
Intrinsic value of Devon Energy Corp. capital 31,827
Less: Debt and finance lease liabilities (fair value) 6,488
Intrinsic value of Devon Energy Corp. common stock 25,339
 
Intrinsic value of Devon Energy Corp. common stock (per share) $39.55
Current share price $44.18

Based on: 10-K (reporting date: 2022-12-31).

1 See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Weighted Average Cost of Capital (WACC)

Devon Energy Corp., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 28,306 0.81 25.80%
Debt and finance lease liabilities (fair value) 6,488 0.19 4.67% = 5.75% × (1 – 18.80%)

Based on: 10-K (reporting date: 2022-12-31).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 640,700,000 × $44.18
= $28,306,126,000.00

   Debt and finance lease liabilities (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (22.00% + 2.00% + 18.00% + 28.00% + 24.00%) ÷ 5
= 18.80%

WACC = 21.86%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Devon Energy Corp., PRAT model

Microsoft Excel
Average Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019 Dec 31, 2018
Selected Financial Data (US$ in millions)
Interest based on debt outstanding 370 388 259 260 298
Net earnings (loss) from discontinued operations, net of income taxes — — (128) (274) 2,460
Net earnings (loss) attributable to Devon 6,015 2,813 (2,680) (355) 3,064
 
Effective income tax rate (EITR)1 22.00% 2.00% 18.00% 28.00% 24.00%
 
Interest based on debt outstanding, after tax2 289 380 212 187 226
Add: Common stock dividends 3,410 1,329 260 140 149
Interest expense (after tax) and dividends 3,699 1,709 472 327 375
 
EBIT(1 – EITR)3 6,304 3,193 (2,340) 106 830
 
Short-term debt 251 — — — 162
Current finance lease liabilities 8 8 8 7 —
Long-term debt 6,189 6,482 4,298 4,294 5,785
Long-term finance lease liabilities 249 247 244 240 —
Stockholders’ equity attributable to Devon 11,167 9,262 2,885 5,802 9,186
Total capital 17,864 15,999 7,435 10,343 15,133
Financial Ratios
Retention rate (RR)4 0.41 0.46 — -2.08 0.55
Return on invested capital (ROIC)5 35.29% 19.96% -31.47% 1.03% 5.49%
Averages
RR -0.16
ROIC 6.06%
 
FCFF growth rate (g)6 -0.99%

Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).

1 See details »

2022 Calculations

2 Interest based on debt outstanding, after tax = Interest based on debt outstanding × (1 – EITR)
= 370 × (1 – 22.00%)
= 289

3 EBIT(1 – EITR) = Net earnings (loss) attributable to Devon – Net earnings (loss) from discontinued operations, net of income taxes + Interest based on debt outstanding, after tax
= 6,015 – 0 + 289
= 6,304

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [6,304 – 3,699] ÷ 6,304
= 0.41

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 6,304 ÷ 17,864
= 35.29%

6 g = RR × ROIC
= -0.16 × 6.06%
= -0.99%

FCFF growth rate (g) implied by single-stage model

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (34,794 × 21.86% – 6,277) ÷ (34,794 + 6,277)
= 3.24%

where:

Total capital, fair value0 = current fair value of Devon Energy Corp. debt and equity (US$ in millions)
FCFF0 = the last year Devon Energy Corp. free cash flow to the firm (US$ in millions)
WACC = weighted average cost of Devon Energy Corp. capital

FCFF growth rate (g) forecast

Devon Energy Corp., H-model

Microsoft Excel
Year Value gt
1 g1 -0.99%
2 g2 0.07%
3 g3 1.12%
4 g4 2.18%
5 and thereafter g5 3.24%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= -0.99% + (3.24% – -0.99%) × (2 – 1) ÷ (5 – 1)
= 0.07%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= -0.99% + (3.24% – -0.99%) × (3 – 1) ÷ (5 – 1)
= 1.12%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= -0.99% + (3.24% – -0.99%) × (4 – 1) ÷ (5 – 1)
= 2.18%