Energy firm Devon Energy (NYSE:DVN) has seen its stock price fall close to 30% from its highs of last fall. Plummeting natural gas prices are the primary culprit, but the stock could recover along with prices going forward. For the time being though, its domestic focus is proving a liability.
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Company Overview
Devon focuses on the exploration, development and production of oil, natural gas and natural gas liquids (NGL). The recent production mix breakdown was roughly 21, 63 and 16%, respectively, making the company primarily exposed to the depressed natural gas market. Its business is now primarily focused on North America. In recent years it has focused on selling off international and offshore assets.

Outlook and Valuation
Analysts currently project a full year sales decline of almost 7% and total revenues of nearly $10.7 billion. The profit projection for 2012 stands at $5.25 per share and is projected to grow to $6.78 for 2013. Analysts expect a sales recovery in 2013 and full year growth of almost 13% to total revenues just over $12 billion. The P/E is currently 5.23 and a forward P/E of approximately 8.81. Both are well below the industry and market averages in the mid-teens.

SEE: Natural Gas Industry: An Investment Guide

The Bottom Line
As of the end of the most recent first quarter, Devon boasted about $5.8 billion in cash and cash equivalents on the balance sheet. Long-term debt was just over $6.7 billion but easily covered by total current assets, though short-term debt was sizable at roughly $4.1 billion. Overall though, this was a much more favorable position than archrival Chesapeake (NYSE:CHK), which is having to lower CAPEX and sell off assets to pay down debt and also help bridge a shortfall in its spending needs.

Devon's decision to focus primarily in the domestic market is also in contrast to peer Apache Corp (NYSE:APA), which is pursuing a more balanced strategy of geographic and energy diversification. Rivals including EOG Resources (NYSE:EOG) and Anadarko Petroleum Corporation (NYSE:APC) are also more internationally diversified.

For Devon and Chesapeake, an overreliance on the domestic natural gas market is hampering its near-term operations. On the flip side, this means they have solid recovery potential if and once natural gas prices do rise. Devon is looking like the safer play of these two firms right now.

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At the time of writing, Ryan C. Fuhrmann did not own shares in any of the companies mentioned in this article.

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