Shares of Devon Energy (NYSE:DVN) have significantly underperformed in recent years. The stock is down about 4% this year and roughly 3% over the last three even though oil has been on the rise and the company has significantly improved its balance sheet, cost structure, and growth prospects. That's a frustrating outcome for investors, though one the company is working hard to reverse.

It's doing so by authorizing an industry-leading stock repurchase program, with it on pace to retire nearly 20% of its shares outstanding by the middle of next year. That buyback has already started nudging shares in the right direction and could drive them much higher in the coming year.

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Drilling down into Devon's repurchase program

Devon Energy first announced its share buyback in early March, authorizing a $1 billion plan that was enough to retire 6% of its outstanding stock at the time. However, after selling its midstream business for $3.125 billion a few months later, Devon hit the accelerator on its buyback program by boosting it up to $4 billion, which, given its stock price at the time, was enough to reduce its outstanding share count by 20%.

The oil company has made quick work of that buyback authorization. By the end of July, the company had repurchased 24 million shares for roughly $1 billion, which represented about 5% of its outstanding stock. Meanwhile, Devon updated investors on this program last week, announcing that it had repurchased 50 million shares so far for $2 billion.

Further, the company said that it expects to buy back another $500 million by the time it hosts its third-quarter conference call in the first part of November. That puts it on track to complete the entire authorization by early next year. Meanwhile, if shares don't budge, the company should still be able to retire 20% of its outstanding shares, which is an industry-leading level given the roughly one-year time frame.

Image source: Getty Images.

Compelling evidence for big-time outperformance

While Devon Energy's stock is down overall for 2018, the buyback has helped drive shares up from their low earlier in the year, with the stock up 28% since it launched the buyback program. Those gains appear poised to continue, given what similar buyback programs have done for rivals in the past year.

One of the most notable has been ConocoPhillips (NYSE:COP), which first started buying back its stock in late 2016. The oil giant announced a $3 billion buyback in November of that year, which it planned to finance with asset sales. ConocoPhillips would go on to sell more than double the amount of assets it initially expected, which enabled the company to complete that authorization by the end of 2017. Meanwhile, it's working to buy back another $3 billion in stock this year as part of a $15 billion program through 2020 that could also see the company retire 20% of its outstanding stock depending on its purchase prices. However, with shares of ConocoPhillips up 64% since announcing the plan -- versus an 8% decline for Devon Energy -- it's not going to get as much bang for its buyback buck going forward.

Anadarko Petroleum (NYSE:APC) is another oil stock that has benefited from a needle-moving buyback plan. Since announcing a $2.5 billion authorization in late 2017 -- at the time, enough to retire 10% of its shares -- Anadarko's stock price has rocketed 40%, while Devon's has only risen 14%. One of the drivers of Anadarko's rapid rally is that the company quickly completed its authorization, buying back the entire $2.5 billion plus an incremental $500 million by the end of June. That led the company to add another $1 billion to its authorization, which it plans to complete by next year.

Plenty of fuel to continue rising

Devon Energy is buying back its stock as fast as it can because similar programs have fueled big-time gains for rival oil stocks in recent years. That's already starting to happen at Devon, given its big bounce off the bottom earlier in the year. However, with shares still down overall, the stock could have much farther to go as it quickly completes its current authorization. Meanwhile, with its business on pace to generate billions of dollars in free cash flow over the coming years, Devon should have even more fuel to continue buying back its stock in the future, which should eventually move the needle for investors.

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Matthew DiLallo owns shares of ConocoPhillips. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.