With Crude Prices Around $75 a Barrel, This High-Yielding Oil Stock Is an Incredible Bargain

Core Viewpoint - Devon Energy is currently undervalued despite its strong free cash flow generation capabilities, making it an attractive investment opportunity in the oil sector [2][10]. Financial Performance - Devon Energy generated $587 million in free cash flow during the second quarter, an increase of 80% year-over-year, driven by rising production and improved commodity pricing [4]. - The company has a breakeven level of around $40 per barrel in the Delaware Basin, allowing it to produce significant cash flow at current oil prices [3]. Valuation Metrics - Devon Energy trades at a free cash flow yield of approximately 10% based on a forecast of $75 oil in 2024, significantly higher than the Nasdaq's 3% and the S&P 500's 4% yields [5]. - The company's dividend yield is around 4%, compared to 1.3% for the S&P 500 and 0.8% for the Nasdaq, indicating a cheaper valuation [5]. Acquisition Strategy - Devon Energy is in the process of acquiring Grayson Mill Energy for $5 billion, which is expected to be immediately accretive to its earnings and cash flow [6]. - The acquisition is projected to increase cash flow per share by about 10% in the first year and improve free cash flow by 15% [7]. Capital Allocation - The company has shifted its capital allocation strategy to prioritize share repurchases over variable dividends, with nearly half of its capital return in the second quarter being share buybacks [8]. - Devon Energy expanded its share repurchase program by 67% to $5 billion through mid-2026, adding to the $2.7 billion repurchased since late 2021 [9].