Devon Energy (DVN)

[dan_s]

I am in the process of updating all of my Sweet 16 forecast models. For most of them, my valuations are coming very close to the current First Call price forecasts.
However, a few of them really look mispriced by the Wall Street gang.

For Devon Energy there are 33 analysts who have submitted forecasts to First Call for 2016. Earnings per share forecasts for the year range from -$3.34 to $4.48. Obviously, the analysts who are forecasting that Devon's earnings come in at the low end of this range have very low price targets for the stock.

To get to the low end of that range, I had to take WTI to $20/bbl and leave it there all year. Keep in mind that Devon's controlled midstream MLP generates a lot of earnings and cash flows for DVN.

Granted, with the big acquisition that Devon announced from Felix Energy the numbers for 2016 are a bit harder to figure out. I think my production forecast is conservative and I am coming up with EPS for 2016 of $0.80 to $0.90 and cash flow per share from operations of $8.00 to $9.00. If oil prices do rebound in the 2nd half of 2016, which I expect to happen, Devon's earnings and cash flows will be much higher. 2015 CFPS will be over $12.00.

Devon produces over 1.5 BCF per day of natural gas, so a spike in gas prices will really help this one.

I am eager to see their Q4 results and guidance for 2016. Devon is definitely a "Core Holding" quality company and one of the companies with a lot of exposure to STACK.