Devon Energy (DVN) - Upgrade

[dan_s]

MORGAN STANLEY UPGRADES DEVON ENERGY Recent stabilization of the oil prices benefits companies like Devon Energy Corp (NYSE: DVN). upgraded the rating for the company from Equal-weight to Overweight, while raising the price target by 40 percent to $36.

Oil Price Stabilization: Analyst Evan Calio believes that the recent stabilization of the oil prices has the following impacts: Increases the chances of success of asset sales Allows the market to focus on "E&P future upside to medium-term commodity price recovery These factors improve the relative risk-reward Devon Energy, Calio commented.
Morgan Stanley's commodity strategist expect crude to remain in the range of $25-$45 per barrel.
Calio added, however, that the longer-term outlook has improved in view of: Accelerating US declines

Why Devon Energy? "Within E&Ps, we expect large cap "value" names to lead given their relative size in the broad value index sector," the Morgan Stanley report noted. The analyst added that within this sub-segment, Devon Energy may outperform, given: The shares have underperformed, with among the highest multiple compressions The company has a path to de-lever in 2016 via asset sales, which would mitigate a primary overhang that resulted in pressure on its shares Devon Energy has exposure to the STACK, "which we believe is one of the fastest improving unconventional plays."
Devon Energy's shares are likely to outperform, since the company has significant operating and financial leverage and "a deep unconventional drilling inventory," Calio mentioned.
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Devon has significant upside, especially if they can close on their asset sales at good prices. They are hoping to raise $2 Billion. - Dan

[dan_s]

Devon is one of the companies we will discuss at our luncheon in Houston on Monday, April 25.

[par_putt]

DVN 1Q2016 Net Loss of $3.1B

[dan_s]

Devon Energy Corp. DVN reported first-quarter 2016 adjusted loss per share of 53 cents, narrower than the Zacks Consensus Estimate of a loss of 60 cents. In first-quarter 2015, the company reported earnings of 22 cents per share. < This is actually better than my forecast of $0.61 loss per share.

AGAIN: GAAP accounting rules for impairment and hedges cause very confusing earnings reports. Focus on Cash Flow From Operations. Cash pays the bills, not earnings.

I will try to update my forecast model for Devon today. Info now coming out of a fire hose from our model portfolio companies.

[dan_s]

This is the key for Devon. If they can raise over $2 Billion on these asset sales, they will be in great shape to focus on STACK.

Asset Divestiture Programs Advance

To further enhance its financial strength, the Company is targeting total divestiture proceeds of $2 billion to $3 billion. In April, Devon took an important step toward that divestiture goal by announcing the sale of its non-core Mississippian assets in northern Oklahoma for $200 million, which is expected to close in the second quarter.

The divestiture process for the Company’s remaining non-core assets is ongoing. Devon is marketing its 50 percent interest in the Access Pipeline in Canada and anticipates an announcement in the first half of 2016. Efforts to monetize remaining non-core upstream assets in the U.S. are also progressing. Data rooms have been open since early March and bids are expected by the end of the second quarter.