Can Devon Energy Continue Rallying after Its 1Q16 Earnings?

Devon Energy (DVN) announced its 1Q16 earnings on May 3, 2016, after the market closed. On the day of DVN’s earnings, its stock price fell by 5.2% to close at $32.75.

After hours, Devon Energy’s stock price traded as high as $33.98 before trading closed. In the three months leading up to DVN’s earnings, its stock price rose by a whopping ~80%, mainly due to the ~57% rise in crude oil (USO) (SCO) (DWTI) prices during the same period.

Falling crude oil (UCO) (USL) and natural gas (UGAZ) prices over the last two years have led to a falling trend in the entire upstream sector. DVN was no exception.

However, since February 2016, Devon Energy’s stock is in a new uptrend. It’s clearly making a pattern of higher highs and higher lows.

In 2016, DVN has been underperforming other upstream companies. So far in the year, it’s risen by ~3%, whereas other oil and gas producers such as Laredo Petroleum (LPI), Sanchez Energy (SN), and QEP Resources (QEP) have risen by ~47%, ~90%, and ~30%, respectively.

In the last year, DVN has beat earnings expectations in 4Q15, 3Q15, and 2Q15. DVN reported its 4Q15 earnings after the market closed on February 16, 2016. In 4Q15, excluding one-time items, DVN reported earnings of $0.77 per share, $0.06 higher than consensus estimates of $0.71 per share.

Following its earnings release, DVN’s better-than-expected earnings caused its stock price to fall by ~14% in three sessions.

A similar contrarian reaction was observed after the company’s 2Q15 earnings, when Devon Energy’s stock price fell by ~25% in three weeks, even after beating consensus earnings estimates by $0.35 per share.

DVN’s 3Q15 post-earnings reaction was positive. Its stock price rose by ~6% in five sessions after beating consensus earnings estimates by $0.24 per share. However, considering the magnitude of the beat, the reaction was still muted.