Devon Energy (DVN) Valuation Update - July 15

[dan_s]

On July 8th Devon announced the Grayson Mill Energy Acquisition, valued at $5 billion.
Read details here: https://finance.yahoo.com/news/devon-energy-announces-strategic-acquisition-110500974.html

Devon is a highly respected upstream company with a market-cap of approximately $30.5 billion, so this is a SIGNIFICANT acquisition for them. I like it because it adds a lot of high-quality "Running Room". < Post-Closing production should be over 765,000 Boepd with a mix of 49% crude oil, 26% natural gas and 25% NGLs.

Today DVN is trading at just over $48 per share.

My valuation of DVN was $61.50 on June 30th. < My current valuation increases to $63.00

12 of the 20 energy sector analysts that cover DVN for TipRanks have updated their price targets since the acquisition was announced on July 8th to an average price target of $59.67 (range of $52 to $67). Eight rate the stock a BUY at the current price with four rate it a HOLD.

Quite a few analysts rate stocks as HOLD when deals of this size are announced. They wait until the deals closes before telling you what they really think. The numbers look good on this acquisition to me because it should push Devon's operating cash flow over $8 billion in 2025 if WTI averages $80/bbl.

This is an accretive transaction. Key to my increased valuation from the press release: "Due to the accretive nature of this transaction to free cash flow, Devon’s board of directors has expanded its share-repurchase authorization by 67 percent to $5 billion through mid-year 2026. The company also expects this acquisition to be accretive to the company’s dividend payout in 2025 and beyond."

My updated forecast/valuation model has been posted to the EPG website.