What: August was a tough month for Devon Energy Corp. (NYSE:DVN) as its stock finished the month down 11.8%, though it could have been worse as the stock was down more than 22% at one point. Fueling its weak performance was the price of oil, which really overshadowed the company's strong second-quarter report.
So what: Speaking of second-quarter earnings, Devon Energy reported solid results on August 5 as the company crushed analyst expectations. Driven by strong cost reductions, Devon earned $0.78 per share, which was more than double the consensus estimate. It also reported better-than-expected oil production for the fourth straight quarter and reiterated its full-year production guidance to deliver 25%-35% year-over-year oil production growth.
The market, however, was unimpressed. Some of this has to do with the fact that Devon Energy is pushing oil production growth at a time when the oil market is already oversaturated. In fact, that's why crude oil rolled over in July and through most of August as the market feared that U.S. oil producers were not taking the oversupply seriously as many were still growing production. Fears that the oil downturn will last much longer than expected really slammed Devon Energy's stock in August.
Now what: Devon Energy continues to get punished by the persistent weakness in oil prices despite the fact that it's operating exceptionally well. At some point, the market will recognize its operational excellence and balance sheet strength, though that might not be until oil prices are meaningfully higher. That said, it has a lot of upside as it will thrive when conditions improve.