Devon Energy (DVN) Asset Quality Improving Driving PT Increase - Barclays
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Rating Summary:
33 Buy, 15 Hold, 0 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 17 | Down: 14 | New: 17
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Barclays analyst, Thomas Driscoll, hosted five days of investor meetings for Devon Energy (NYSE: DVN) last week and is raising his PT to $38 (from $34). No change to Overweight rating.
Acquisitions in two "world class" basins have improved asset quality. The $6 billion Eagle Ford acquisition (from GeoSouthern in Nov. 2013) and the $1.9 billion STACK acquisition (from Felix) announced in December 2015, combined with 500,000 acres in the Delaware, provides Devon with some of the best assets in three top-tier unconventional plays. Returns in the Eagle Ford and STACK are comparable to those in the Delaware Basin's Bone Spring and Leonard Sands.
IHS data showed DVN's IPs rose 250% since 2012 and DVN's relative results improved from the middle of the pack in 2012 to #1 in 2015. DVN attributed 60% of the improvement to asset quality (e.g. Eagle Ford acquisition) and 40% to drilling and completion advances (bigger fracs in the Delaware).
Raising price target by $4 to $38. DVN trades at 6.0x mid-cycle debt-adjusted cash flow estimates vs. a peer average of 7.7x. We believe the 20-25% discount will narrow or disappear if DVN can deliver top tier results while reducing leverage.
For an analyst ratings summary and ratings history on Devon Energy click here. For more ratings news on Devon Energy click here.
Shares of Devon Energy closed at $34.54 yesterday.
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