Devon

[RTaber1]

Where the "value" in Devon? It seems fairly fairly valued now.

[dan_s]

66% year-over-year production growth looks good to me. If your client is looking at the 2020 year-end reserve report to value this company, he is basing his opinion on VERY OLD DATA.

Download my forecast/valuation model to see that my valuation of $48/share is just 6.25 X annualized operating cash flow per year.

Devon is on pace to generate close to $3 Billion of free cash flow this year. IMO it now deserves a valuation of 8X operating cash flow per share.

In 2022 they should generate over $9 per share of operating cash flow. What do you think a "cash flow machine" like this should be valued at?

TipRanks: "In the last 3 months, 16 ranked analysts set 12-month price targets for DVN. The average price target among the analysts is $38.19. Analysts valuations range from $33 to $47". NONE of those valuations are based on natural gas and NGL prices that we have today.

Devon's Q4 production mix should be 51% crude oil, 26% natural gas and 23%.

[RTaber1]

It is probably simple-minded, but if I thought its cash flow were sustainable, won't we want to pay 3x cash flow for a share price than 8x cash flow, 3x implying the return of my principal in 3 years (33% return on capital) that 12x implying a return of my capital is about 8 years (or about 12% return on capital). Up here, farmers weight the likely return on their capital between buying a stock or putting up a new hog house. Usually the hog house wins and these guys are multi-
millionaires.

[dan_s]

Devon is a large world class company. If you think it is too expensive, buy something else. Lots of our Small-Caps trade for less than 4X operating cash flow. As I say in each newsletter, there is more upside in the small-caps but there is also more risk.

Just remember that size does matter in this business.