Devon (DVN) price target - Jan 20

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dan_s
Posts: 34463
Joined: Fri Apr 23, 2010 8:22 am

Devon (DVN) price target - Jan 20

Post by dan_s »

Note from RBC Capital. RBC shows a price target of $72 and an "Upside Scenario" of $95. My updated current valuation is $81.
At the time of this post, DVN was trading at $64.76

January 19, 2023
Devon Energy Corporation
Quarterly Check-Up: 4Q22

Our view: Operations were impacted by weather, particularly in the Bakken
but should be back on track. This could cause some caution on the 2023
guidance. We estimate the 4Q22 declared quarterly variable dividend at
$0.80/share, down from $1.17/share in 3Q22. We think the key investor
debates are further appetite for tactical M&A, buyback pace expectations,
and inventory/FCF sustainability over a multi-year period.

Key points:
• Our 4Q22 EPS/CFPS estimates decreased by $0.19/$0.20 to $1.76/$3.08 < Very close to my forecast.
mostly reflecting final benchmark oil prices that were below our prior
forecast and DVN's pre-announced production results. Our estimates are
generally inline with the $1.77/$3.11 consensus but above the implied
midpoint guidance of $1.69/$2.99.
• Oil diff s/b better than guidance while gas diffs trended to the low-end.
• Our 2023/2024 EPS/CFPS estimates have also changed reflecting RBC's
most recent commodity deck update. Please see details in our note.
• We model 4Q22 production at 636 Mboe/d (316 Mb/d oil) based on the
pre-announced results that include weather impacts of 15 Mboe/d (50%
oil). Almost half of the downtime was in the Bakken.
• We expect 4Q22 capital spending of $866 million, inline with consensus
and below the midpoint of the $845-915 million guidance. We calculate
FCF generation of $1,150 million.
• DVN hedged 26% of oil and 30% of natural gas production in 4Q22,
resulting in a cash settled loss of $158 million.

Channel checks and investor topics:
• DVN plans to provide a formal 2023 budget and outlook with earnings.
Activity is on pace to the 0-5% long-term organic growth target. We think
production trends more to the mid-point or better, but management
could be more conservative. We expect a capital budget of $3.5-3.7
billion, consistent with a 0-5% inflation factor on the 4Q22 runrate. < Based on my forecast FCF in 2023 should be over $4.5 billion.
• Well performance remains solid in most basins, but improvements have
flattened some. There remains confidence in the Permian assets and DVN
is now targeting more Wolfcamp B into the program.
• The Permian remains the core asset, but management has scaled a
diversified portfolio that includes growing positions in the Eagleford,
Bakken, Powder River, and Anadarko Basins.
• Stock repurchases likely trended higher sequentially to $150-200 million
but still below the pace in 1H22. DVN's current authorizations goes
through May 2023, so that could be increased and extended.
• We think DVN maintains its 50% of FCF variable divided ratio. Cash likely
builds on the balance sheet but we think will likely be used for continued
stock repurchases and potential acquisitions opportunities.
• We expect portfolio longevity/depth could be a discussion point at
earnings. We believe tactical M&A remains a potential outlet with excess
FCF. Management could highlight the existing Eagleford refrac, infill, and
redevelopment potential
Dan Steffens
Energy Prospectus Group
dan_s
Posts: 34463
Joined: Fri Apr 23, 2010 8:22 am

Re: Devon (DVN) price target - Jan 20

Post by dan_s »

Per TipRanks: Since 1/9/2023 four analysts have updated their price targets for DVN

BMO Capital 1/17/2023 $75.00
Piper Sandler 1/13/2023 $96.00
JP Morgan 1/11/2023 $73.00
Mizuho Securiteis 1/9/2023 $82.00
Dan Steffens
Energy Prospectus Group
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