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"Promises are like the full moon, if they are not kept at once they diminish day by day" - German Proverb

Regular readers of my investment columns know that Devon Energy (NYSE:DVN) is my favorite mid-major energy play for capital appreciation in 2014. The company reminds me of Hess Corporation (NYSE:HES) in late 2012 which I rode to big gains in 2013. Like Hess, this energy company is focused on transforming itself into a more efficient organization after years of being a laggard in this area and in the market.

Devon's delivered some more confirmation to patient shareholders today that they are indeed committed to that path. This should bode well for continued appreciation.

Canadian Asset Sale:

The company is keeping to its promise to sell off its substantial assets & operations in Canada to concentrate on growing its U.S. production from a variety of properties. This should produce higher returns on capital and better growth rates.

Devon announced today that is selling some of its liquids-rich natural-gas assets in Canada and six natural-gas plants for $2.86B to Canadian Natural Resources (NYSE:CNQ). This deal doesn't include Devon's Horn River interests in northern British Columbia and heavy oil assets in Alberta but hopefully a buyer will be found in near future for these assets. This is a very good start to Devon's move to divest Canadian assets.

Earnings Results:

In a heavy news day for the company, Devon also announced that earnings came in at $1.10 a share, three cents a share above the consensus. The company also said proved reserves hit a record at the end of the just completed fiscal year.

To me, the most impressive part of the earnings report was from the company's Permian acreage. Production jumped 29% Y/Y to 86,000 BOE/D (Barrels of oil equivalent/day). 60% of production was light oil. Devon also saw production increases in the teens in the Barnett Shale and Anadarko Basin. Finally, production grew almost 50% to 16,000 BOE/D from its emerging Mississippian-Woodford Trend play. It is easy to see why Devon wants to invest more to grow production from these fast growing areas in the U.S.

Valuation:

Earnings jumped almost 35% Y/Y in the just completed fiscal year and analysts project similar year-over-year earnings gains in FY2014. Revenues from continuing operations should post a ~20% increase in the new fiscal year. Given growth in earnings & revenues, DVN is too cheap at ~11x forward earnings. With the earnings report, big asset sale and the recent spike in natural gas & oil prices; I expect analysts' earnings estimates to be revised up in coming weeks as well. BUY

Disclosure: I am long DVN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Devon Energy Is Delivering On Its Promises