Devon Energy - Stock Offering

[dan_s]

Devon Energy Corporation (DVN) ("Devon" or the "Company") announced today that it has priced an upsized public offering of 69,000,000 shares of its common stock at a price to the public of $18.75 per share. Net proceeds from the offering are expected to be used for general corporate purposes, including bolstering the Company’s liquidity position, reducing indebtedness and funding the Company’s capital program. The Company has also granted the underwriters an option to purchase up to an additional 10,350,000 shares of its common stock at the underwriters’ election. The offering is expected to close on February 22, 2016, subject to customary closing conditions.

I have adjusted my forecast model for Devon to include the stock offering above. The model assumes all 79,350,000 shares are sold by the end of February.

My valuation for DVN declines to $49.00/share, compared to First Call's price target this morning of $42.18.

The cash from the stock offering:
> Increases the fully diluted share count from 413 to 493 (11.1%)
> Significantly improves their balance sheet ratios (making bankers happy)
> Reduces interest expense
> Will fully fund the company's 2016 capital program
> Takes the pressure off to sell their non-core assets, which are currently on the market.

Devon is a company "in transition" that should look a heck of a lot better to the market in six months.