Energy Prospectus

Devon’s operating cash flow totaled $810 million in the second quarter compared to $345 million in the year-ago quarter. This 135 percent increase in operating cash flow year over year was attributable to higher commodity prices and an improved cost structure.

Devon’s reported net earnings totaled $425 million or $0.80 per diluted share in the second quarter. Adjusting for items that securities analysts typically exclude from their published estimates, the company’s core earnings totaled $177 million or $0.34 per diluted share. < Compares to my forecast of $0.35 Adjusted EPS

Devon's capex budget is fully funded by cash flow from operations. Operating cash flow per share of $1.43 beat my forecast.

Keep this in mind when valuing DVN:

The company’s midstream business generated $224 million of operating profit in the second quarter, an 8 percent increase compared to the first quarter of 2017. This growth was driven entirely by Devon’s strategic investment in EnLink Midstream. Devon expects its midstream operating profits to advance to a range of $900 million to $950 million in 2017. Based on midpoint guidance, this estimate represents a 10 percent increase compared to 2016.

Devon has a 64 percent ownership in EnLink’s general partner (NYSE: ENLC) and a 23 percent interest in the limited partner (NYSE: ENLK). In aggregate, the company’s ownership in EnLink has a market value of approximately $3.6 billion and is expected to generate cash distributions of approximately $270 million annually.

Devon Energy is a complex company with a lot of moving parts. That said, I am gaining more confidence in my forecast model for this company. For a large-cap that is generating free cash flow and lots of running room, I am using a rather low multiple of operating cash flow to value it (just 10X CFPS).

My valuation increases to $54.00/share, which compares to First Call's price target of $42.12.

My forecast model will be posted to the EPG website later this afternoon. Take a look a the RED BOX and you will see the tremendous upside this one has for us.