DEVON ENERGY CORP. $34.12

DEVON ENERGY CORP. $34.12 (New York symbol DVN; TSINetwork Rating: Speculative) (405-235- 3611; www.dvn.com; Shares outstanding: 523.9 million; Market cap: $18.1 billion; Dividend yield: 0.7%) is one of the largest U.S.-based oil and natural gas explorers and producers. The company’s production mix is 38% natural gas and 62% oil.

Devon’s daily output averaged 685,000 barrels of oil equivalent in the three months ended March 31, 2016—unchanged from a year earlier. However cash flow per share fell sharply, to $0.31 from $4.02. The decline is the result of lower oil and gas prices, as well as an unfavourable tax adjustment.

Cuts key to Devon’s turnaround

The company continues to lower costs and strengthen its balance sheet while it waits for oil and gas prices to recover.

In the first quarter, Devon cut its workforce by 20%. This will save it up to $500 million a year when combined with other cost cutting. The oil producer also reduced its quarterly dividend by 75%, to $0.06 from $0.24. That should save another $320 million annually. The shares now yield 0.7%.

The company’s long-term debt now stands at a high $12.2 billion, or 67% of market cap. It recently sold 79.4 million shares at $18.75 each to raise $1.5 billion. It will use the funds to pay down debt.

Like all oil and gas stocks, Devon has moved down along with lower oil prices. Still, we recommend that most investors maintain some exposure to the Resources sector. High-quality oil and gas stocks should remain part of a well-balanced portfolio.

Devon Energy is a buy.

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