Devon Energy (DVN) Update - July 2

[dan_s]

Truist analyst Neal Dingmann raised the firm's price target on Devon Energy to $42 from $35 and keeps a Buy rating on the shares as part of a broader research note on Energy E&Ps. The analyst is updating his model with a 10% increase in assumed oil prices for 2021-2023 and also includes free cash flows in addition to EBITDA projections in his valuation analysis.

DVN is currently trading at $29.55. I have updated my forecast/valuation model for my updated oil & gas price deck. My CURRENT valuation increases by $3 to $48.00. My price deck is closer to NYMEX strip prices than what Neal is using.
> Based on the mid-point of the Company's guidance, their "Fixed + Variable Dividend" should be over 7% of the current share price this year and even higher in 2022 if their oil price just averages $65/bbl. I should probably move DVN to our High Yield Income Portfolio.
> More than half of Devon's "Bad Hedges" expired at the end of June, so operating cash flow gets a nice boost in Q3. Based on my new forecast, Devon is now on track to generate approximately $2.8 Billion of free cash flow from operations. After paying dividends they will continue to pay off a large chunk of debt quarter-after-quarter.
> A reasonable 12-month price target is $60.

Q2 will be the first full quarter since Devon's merger with WPX Energy that closed in January. If Q2 results and their updated guidance confirm my forecast model assumptions, a higher multiple of operating CFPS to value the stock will be justified. "Multiple Expansion" is where the big price target increases come from.

Devon Energy is one of the "Elite Eight" in the Sweet 16 which I have been following since EPG was founded in 2006. I actually tried to get a job with Devon when I left Hess in 2002, but I was too old (48).

[Oldershaw]

Dan,

Is there a story there when you tried to join Devon?

Just curious.

Ben

[dan_s]

Devon had an opening for a Division Controller. It was very much like my job at Hess.
When they called me back for a 2nd interview with the man I would report to, I knew my chances were "slim & none". Why, because he was ten years younger and I had a masters degree, which he didn't. It is not a wise decision to hire people to report to you with more experience and more education.
It was a blessing because I would rather live in Sugar Land, Texas than in OKC and I like my current boss (Susan).