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I have been building a position in Devon Energy Corp (DVN) but Coterra Energy Inc (CTRA) is also good especially w/ their NG exposure. Both are undervalued based on their DCF model:
The value proposition for Devon Energy (DVN) is centered on capital efficiency, balanced commodity exposure, and a compelling valuation, making it a choice for investors seeking a stable, high-quality free cash flow generator in the E&P sector. DVN's focus on the oily Permian Basin gives it a better-hedged revenue stream, mitigating some of the natural gas price volatility that burdens its peers. This stability supports a more dependable shareholder return program. The company is currently valued more attractively on an earnings basis, as evidenced by its lower Price-to-Earnings (P/E) Ratio of 7.6x, compared to CTRA's P/E of 11.1x. Additionally, DVN's quality and stability is often rewarded with a higher overall market capitalization, sitting around $21.6 billion.
The value proposition for Coterra Energy (CTRA) is anchored in superior operating margins and a direct bet on natural gas upside, positioning it for outsized gains when natural gas prices recover. CTRA's legacy assets in the Marcellus and a more flexible capital program allow it to consistently post better financial performance, demonstrating its ability to convert revenue into profit more effectively. This is supported by its significantly higher Net Profit Margin of 25.3% (TTM), which comfortably exceeds DVN's Net Profit Margin of 17.7% (TTM). However, this efficiency comes with greater commodity-price sensitivity, as a large portion of its physical production is natural gas, making its stock a riskier, yet potentially higher-reward, investment for those bullish on long-term LNG demand and natural gas prices. -------------------------------------------------------------
Jim Cramer sees promise in Coterra Energy, but still prefers Devon and Pioneer right now
