Devon Energy (DVN) Update - Oct 20
Posted: Sun Oct 18, 2020 1:51 pm
I have updated my forecast/valuation model for Devon Energy.
I figured out how to combine the First Call operating cash flow per share forecasts for 2021 assuming the all stock merger with WPX Energy closes early in 2021. Since it is an all-stock merger, it really doesn't matter when the deal closes since the "New Devon" shareholders will get full benefit of WPX earnings and cash flow from now until the deal closes because WPX doesn't pay a dividend. My updated 2021 CFPS estimate of $4.88 compares to First Call's estimate of $4.46. First Call's operating CFPS estimates for each company 2020 to 2023 are shown in RED BOXES on the right side of the forecast model.
My updated valuation of DVN is $17.30, up $0.30 primarily because I have increased my assumptions for future natural gas and NGL prices for each company.
Since the merger was announced, TipRank shows that 7 analysts have updated their price target for DVN: 1 at $14, 2 @ $15, 2@ $16, 1 @ $17 and 1 @ $18 for an average of $15.86
DVN closed at $8.95 on Friday, October 16.
Devon currently pays a dividend of $0.11/quarter. Based on my forecast, they should double the dividend in 2021. If so, the dividend yield would increase to 9.8% ($0.88/$8.95). < This is one of the main reasons that I believe DVN will double soon after the merger closes.
In 2021 "New Devon's" production of ~580,000 BOE per day will have a mix of approximately 52% crude oil, 28.5% natural gas and 19.5% NGLs. < This mix has a lot of upside for us because it now looks like gas and NGL prices could go a lot higher next year.
I figured out how to combine the First Call operating cash flow per share forecasts for 2021 assuming the all stock merger with WPX Energy closes early in 2021. Since it is an all-stock merger, it really doesn't matter when the deal closes since the "New Devon" shareholders will get full benefit of WPX earnings and cash flow from now until the deal closes because WPX doesn't pay a dividend. My updated 2021 CFPS estimate of $4.88 compares to First Call's estimate of $4.46. First Call's operating CFPS estimates for each company 2020 to 2023 are shown in RED BOXES on the right side of the forecast model.
My updated valuation of DVN is $17.30, up $0.30 primarily because I have increased my assumptions for future natural gas and NGL prices for each company.
Since the merger was announced, TipRank shows that 7 analysts have updated their price target for DVN: 1 at $14, 2 @ $15, 2@ $16, 1 @ $17 and 1 @ $18 for an average of $15.86
DVN closed at $8.95 on Friday, October 16.
Devon currently pays a dividend of $0.11/quarter. Based on my forecast, they should double the dividend in 2021. If so, the dividend yield would increase to 9.8% ($0.88/$8.95). < This is one of the main reasons that I believe DVN will double soon after the merger closes.
In 2021 "New Devon's" production of ~580,000 BOE per day will have a mix of approximately 52% crude oil, 28.5% natural gas and 19.5% NGLs. < This mix has a lot of upside for us because it now looks like gas and NGL prices could go a lot higher next year.