Devon Energy (DVN)

[dan_s]

Devon Energy is one of my Top Picks for 2017. On January 20th, Credit Suisse sent out a new research report on the company. Their price target is $55.00/share, compared to my valuation of $64.00/share. Below are CS comments. - Dan

For much of 2016, DVN had to focus on defense, although
throughout the year, the ops reports have highlighted substantial progress
improving shale inventory in the STACK and Delaware, lowering costs, and
increasing well performance. At 3Q, DVN laid out the strong cashflow
sensitivity to rising commodity prices and a plan to increase the rig count to
15-20 rigs by the end of 2017. DVN laid out a double digit target for US oil
growth in 2017. 2017 will be a transition year as rigs ramp. By the middle of
2017, DVN will be ready to enter development mode in the STACK and
Delaware (while still having a deep inventory to further appraise and
delineate). We stress that the shift to longer laterals in a development mode
and full pad development will result in accelerating production growth
(management have signaled 30% growth from the Delaware and STACK).
This growth will be capital efficient and margin accretive. DVN shares have
traded below NAV for some time. The acceleration in cashflow metrics could
close the gap with NAV and drive a multiple rerating.