Benchmark Upgrades Devon Energy (DVN) to Buy

Benchmark analyst Subash Chandra upgraded Devon Energy (NYSE: DVN) from Neutral to Buy, PT $44.00.

The analyst comments We are raising our rating to BUY from HOLD with DVN’s reversal of type curve deterioration and policies that we have been critical of. We are establishing a $44 PT assuming l-t $3/$80 price deck. DVN reset and outperformed guidance last year. However, they’ve underperformed other oily large caps because of M&A noise (and actual M&A). We believe M&A is now deprioritized as Bakken inventory is replenished and Permian targets are deemed dilutive. Shares are down 14% over the last quarter vs -3% for XLE and single-digit returns for other large-cap E&P. We expect operational beats and share buybacks will better reflect in stock performance without the M&A distraction. The variable dividend is as good as over, replaced by share buybacks. The variable was a debit to NAV and unrewarded by investors. It will only be paid now if shares are prohibitively expensive. There should be enough FCF this year ($3.6B) to raise the base dividend, fund debt maturities and accelerate the pace of buybacks from $200-$300m current quarterly pace. Gas and NGL realizations should be a tailwind this year. DVN’s 53% non-oil exposure was beset by terrible basis differentials last year. Strong weather- related demand, exports and disciplined supply will result y/y storage deficits, boosting regional prices."

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 $36.77 yesterday.

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