Pioneer Natural Resources Company (PXD) and Devon Energy Corporation (DVN) are two independent companies engaged in the exploration and production (E&P) of oil and gas in the United States. PXD in Irving, Tex., explores, develops, and produces oil, natural gas liquids (NGLs), and gas. In comparison, Oklahoma City, Okla.-based DVN explores, develops, and produces oil and natural gas properties. DVN develops and operates Heavy Oil, Rockies Oil, Eagle Ford, and more.
Amid the ongoing Russia-Ukraine war, Western and EU sanctions imposed on Russia to deter it from continuing the war have been hammering the Russian economy. However, given Russia’s status as one of the world’s major exporters of crude oil and natural gas, disruptions in its oil and gas exports could affect global markets. This potential has pushed oil prices above $113/barrel today. However, OPEC and its allies have been trying to uncork Iranian oil supplies through the revival of the Iranian nuclear deal, which could help ease tight global supplies. Therefore, both DVN and PXD should benefit.
While PXD shares have gained 61.5% in price over the past six months, DVN has surged 107.9%. DVN is a clear winner with 11% gains versus PXD’s 6.9% over the past month. But which of these stocks is a better pick now? Let’s find out.
Recent Financial Results
PXD’s net sales for its fiscal year 2021 fourth quarter, ended Dec. 31, 2021, increased 132.6% year-over-year to $4.32 billion. The company’s total oil and gas sales came in at $3.72 billion, indicating a 266.8% year-over-year improvement. Its pre-tax income was $991 million, up 3439.3% from the prior-year period. While its adjusted income increased 565.5% year-over-year to $1.18 billion, its adjusted EPS grew 328% to $4.58. As of Dec. 31, 2021, the company had $3.85 billion in cash and cash equivalents.
For its fiscal 2021 fourth quarter, ended Dec. 31, 2021, DVN’s total revenues increased 233.8% year-over-year to $4.27 billion. The company’s oil, gas, and NGL sales came in at $2.99 billion, representing a 279.8% rise from the prior-year period. Its EBIT was $1.66 billion, versus a $110 million loss in the year-ago period. DVN’s non-GAAP net income was $935 million, versus a $1 million loss in the prior-year period. And its non-GAAP EPS came in at $1.39 versus a zero EPS in the year-ago period. The company had $2.10 billion in cash and cash equivalents as of Dec. 31, 2021.
Past and Expected Financial Performance
PXD’s revenue, EBITDA, and EPS have increased at CAGRs of 24%, 26.7%, and 14.8%, respectively, over the past three years.
PXD’s EPS is expected to grow 63.1% year-over-year in its fiscal 2022, ending Dec. 31, 2022. Its revenue is expected to grow 12.7% year-over-year in its fiscal year 2022. And analysts expect the company’s EPS to grow at a 58.8% rate per annum over the next five years.
In comparison, DVN’s revenue, EBITDA, and EPS have increased at CAGRs of 15.8%, 24.6%, and 58.6%, respectively, over the past three years.
Analysts expect DVN’s EPS to rise 68.3% year-over-year in its fiscal year 2022, ending Dec. 31, 2022. Its revenue is expected to increase 20.1% year-over-year in fiscal 2022. The company’s EPS is expected to grow at a 10.7% rate per annum over the next five years.
Valuation
In terms of non-GAAP forward PEG, PXD is currently trading at 0.85x, which is 3.7% higher than DVN’s 0.82x. And in terms of forward EV/Sales, DVN’s 5.85x compares with PXD’s 6.04x.
Profitability
PXD’s trailing-12-month revenue is almost 1.4 times DVN’s. However, DVN is more profitable, with a 42% EBITDA margin versus PXD’s 37.6%.
Furthermore, DVN’s 45.6%, 13.4% and 17.5% respectively ROE, ROA, and ROTC compare with PXD’s 12.3%, 9.4% and 11.4%.
POWR Ratings
While DVN has an overall B grade, which translates to Buy in our proprietary POWR Ratings system, PXD has an overall C grade, which equates to a Neutral. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.
Both DVN and PXD have an A grade for Momentum, reflecting their impressive price gains over the past year. DVN has gained 33.6% in price year-to-date, while PXD has returned 30.9%.
In terms of Growth, both DVN and PXD are rated B. DVN’s EBITDA has grown 24.6% over the past three years, while PXD’s EBITDA has grown 26.7%.
DVN has a C grade for Value. DVN’s 5.65x forward Price/Cash Flow matches the industry average. However, PXD’s D grade for Value is in sync with its higher-than-industry valuation ratios. And PXD’s 6.13x forward Price/Cash Flow is 8.6% higher than the 5.65x industry average.
Of the 84 stocks in the B-rated Energy - Oil & Gas industry, DVN is ranked #25, while PXD is ranked #68.
Beyond what we have stated above, our POWR Ratings system has also rated DVN and PXD for Stability, Sentiment, and Quality. Get all DVN ratings here. Also, click here to see the additional POWR Ratings for PXD.
The Winner
Growing demand for oil and gas and supply disruptions should benefit both DVN and PXD. However, its relatively lower valuation and higher profitability we think make DVN a better buy here.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Energy - Oil & Gas industry.
PXD shares were trading at $240.61 per share on Friday afternoon, up $2.53 (+1.06%). Year-to-date, PXD has gained 34.54%, versus a -9.20% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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