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Sometimes, even a stable contender in an unstable environment gets gridlocked.

At the start of 2016, oil and natural gas exploration and production (E&P) major Devon Energy (DVN) - Get Devon Energy Corporation Report was staring at a wall; debt levels were high, and production was in poor shape.

However, over the past 12 months, the shale driller managed an intelligent transformation, which is now complete.

Devon cut costs, focused on its strengths and is now back in better form, poised to deliver solid earnings growth. Plus, the company is trading at bargain valuations, offering investors an opportunity to pull in big profits.

With a market capitalization of $21.36 billion, Devon Energy is among the smaller E&P players including Anadarko Petroleum (APC) - Get Anadarko Petroleum Corporation Report , Apache Corp (APA) - Get APA Corporation Report , EOG Resources (EOG) - Get EOG Resources Inc. Report and Occidental Petroleum (OXY) - Get Occidental Petroleum Corporation Report .

Devon offers one of the lowest cost structures right now. When analysts at UBS downgraded Exxon Mobil (XOM) - Get Exxon Mobil Corporation Report , they upgraded Devon Energy and Southwestern Energy (SWN) - Get Southwestern Energy Company Report citing a preference for low-cost options.

Trading at 20.4 times forward earnings, Devon is an attractive bargain. The company's peers are all more expensive, trading at forward earnings ratios of 50.7 times for Anadarko, nearly 40.5 times for Apache, 76.2 times for EOG Resources, 30.6 times for Occidental, and 55 times for Marathon Petroleum (MRO) - Get Marathon Oil Corporation Report .

2016 was a pivotal year for Devon, and the results speak for themselves.

In the fourth quarter, the company exceeded production expectations. It achieved robust well productivity in 2016, underlining the management's shrewd strategy to make the most of the new scenario.

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Devon Energy also reduced operating expenses in the U.S., attaining over $1 billion in annual cost savings.

The company announced an improved growth outlook driven by accelerated capital investment. This investment will help Devon maximize its potential. Devon's estimated proved reserves were 2.1 billion barrel of oil equivalent (Boe) at 2016-end.

The company's midstream business, including its investments in EnLink Midstream (ENLC) - Get EnLink Midstream LLC representing Limited Partner Interests Report and EnLink Midstream Partners (ENLK) , have also shown a lot of promise.

With the majority of Devon Energy's divestiture proceeds utilized to retire $2.5 billion of debt in 2016, the company expects its recurring financing costs to decline by around $120 million annually.

Importantly, there are zero significant debt maturities until mid-2021. Credit rating agencies have given Devon investment-grade credit ratings. It also has nearly $2 billion in cash and an undrawn credit facility of $3 billion, offering a boost to its liquidity profile.

Analysts are also penciling an earnings growth rebound next year. Devon Energy is undoubtedly a great investment opportunity.


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The author is an independent contributor who at the time of publication owned none of the stocks mentioned.