Devon Energy CorporationDVNNYSE

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DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $124.72 per share(market-calibrated)

+183.7%

Upside to Fair Value

Current

$43.96

Pure Model

$131.95

Fair Value

$124.72

Bull Case

$164.56

Bear Case

$107.66

Market Reality Check

Model Terminal Growth

2.00%

Market-Implied Growth

0.50%

Calibrated Growth

1.48%

Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $131.95.

What's Driving This Ratingfor DVN

↓

CapEx normalizing toward maintenance

Historical CapEx is 25.30% of revenue (heavy investment phase). Model fades this to 5.50% by Year 10, freeing up ~$5.0B in annual FCF. This is the biggest driver of long-term cash flow improvement.

↑

Margin expansion modeled

Current EBIT margin is 11.93% — below the sector mature average of 24.22%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $3.0B (11.98% margin).

⚠

Analyst growth decelerates sharply

Revenue growth drops from 13.95% in Year 1 to 2.00% by Year 5 (per analyst consensus). This growth deceleration is a key reason the model may undervalue the stock if growth re-accelerates.

🎯

Market pricing in lower growth than model

The market implies only 0.50% perpetual growth — 150bps below the model's 2.00%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 74.34% indicates efficient cash generation. FCF reaches $6.0B by Year 10 (23.71% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.63

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)7.31%

Cost of Debt

Pre-tax Cost of Debt3.81%

Tax Rate20.74%

After-tax Cost of Debt3.02%

Equity Weight (E/V)74.85%

Debt Weight (D/V)25.15%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (74.85% × 7.31%) + (25.15% × 3.02%)

= 6.23%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$17.7B	$16.3B	$22.8B	$23.7B	$25.1B
EBIT	$2.1B	$1.9B	$2.7B	$2.8B	$3.0B
Tax	$439M	$404M	$564M	$587M	$624M
NOPAT	$1.7B	$1.5B	$2.2B	$2.2B	$2.4B
+ Depreciation	$3.5B	$3.3B	$4.5B	$4.7B	$5.0B
- Capex	$4.5B	$3.4B	$3.8B	$2.9B	$1.4B
- Δ NWC	$217M	-$585M	$45M	$46M	$49M
Free Cash Flow	$503M	$2.0B	$2.9B	$4.0B	$6.0B
Discount Factor	0.941	0.834	0.739	0.655	0.546
Present Value	$473M	$1.6B	$2.1B	$2.6B	$3.3B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$6.0B

Terminal Growth Rate2.00%

WACC6.23%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$143.5B

PV of Terminal Value$78.4B

Exit Multiple Method

Year 10 EBITDA$8.0B

Exit Multiple (EV/EBITDA)14.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$112.2B

PV of Terminal Value$61.3B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$20.7B

PV of Terminal Value$78.4B

Enterprise Value$99.1B

(-) Net Debt$8.4B

Equity Value$90.8B

Shares Outstanding$623M

Price per Share$145.70

Exit Multiple Method

PV of Projected FCFs$20.7B

PV of Terminal Value$61.3B

Enterprise Value$82.0B

(-) Net Debt$8.4B

Equity Value$73.6B

Shares Outstanding$623M

Price per Share$118.21

Pure Model Fair Value

$131.95

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.00%	1.50%	2.00%	2.50%	3.00%
4.23%	$217.15	$254.39	$308.31	$335.36	$322.12
5.23%	$156.82	$175.93	$200.96	$235.13	$284.62
6.23%	$120.65	$131.85	$145.70	$163.25	$186.23
7.23%	$96.92	$104.05	$112.55	$122.84	$135.57
8.23%	$80.38	$85.19	$90.78	$97.35	$105.16

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$107.66

144.9% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 0.78

Base Case

$131.95

200.1% vs current

• Analyst consensus
• Terminal growth: 2.0%
• Beta: 0.63

Bull Case

$164.56

274.3% vs current

• +25% vs analyst consensus
• Terminal growth: 2.5%
• Beta: 0.53

Key Assumptions & Drivers• Energy Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth13.95%

Year 3 Revenue Growth-26.34%

Year 5 Revenue Growth2.00%

Year 7 Revenue Growth2.00%

Year 10 Revenue Growth2.00%

Terminal Growth Rate2.00%

Margin & Efficiency

Current EBIT Margin11.93%

Terminal EBIT Margin24.22%

Tax Rate20.74%

Historical Capex / Rev25.30%

Terminal Capex / Rev5.50%

NWC / Revenue10.00%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 18x EV/EBITDA (S&P 500: 22x P/E)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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