On Wednesday, Barclays (LON:BARC) initiated coverage on Devon Energy Corp (NYSE: NYSE:DVN) with an Equalweight rating and established a price target of $59.00. The move comes after a challenging year for the company, with its shares falling approximately 26% in 2023 and underperforming the Energy Select Sector SPDR Fund (XLE (NYSE:XLE)) by roughly 22%.
The firm acknowledges the capital efficiency concerns that have plagued Devon Energy due to well productivity issues in both the Bakken and Permian regions. However, Barclays anticipates these challenges to be temporary and expects a reversal in 2024.
The confidence in Devon's ability to meet its 2024 guidance stems from a high-graded activity program, which is projected to sustain higher levels of capital efficiency for the next three to five years.
Barclays also addressed the questions surrounding the duration and quality of Devon's inventory, given the maturing asset base. The firm's examination of the Permian inventory indicates that Devon has around 11 years of activity-adjusted inventory remaining in the Delaware, with specific areas such as the Stateline area and the Lea/Eddy county border likely having a shorter span. Despite the maturing basins, such as the Bakken, Barclays sees potential in re-frac opportunities in the Eagle Ford (NYSE:F) and Bakken regions.
The focus for Devon moving forward, according to Barclays, will be on cost savings and efficiency gains to help offset any potential declines in well performance. Devon Energy has not engaged in the recent wave of sector consolidation, but it has been mentioned in conjunction with potential strategic transactions. Barclays notes management's stance on maintaining a high bar for deals.
In summary, Barclays views Devon Energy as fairly valued compared to its peers, with cash flow per debt-adjusted share growth aligned with that of other large-cap exploration and production companies. The price target of $59 is based on a blended target multiple of 6x the estimated 2025 enterprise value to EBITDA (EV/EBITDX) and 1x net asset value (NAV).
InvestingPro Insights
In light of Barclays' recent coverage on Devon Energy Corp (NYSE: DVN), it's worth noting the current market sentiment and performance metrics provided by InvestingPro. With a market capitalization of $34.36 billion and a price-to-earnings ratio of 9.18, Devon Energy is trading at a valuation that suggests potential for investment. The company's commitment to maintaining dividend payments for 32 consecutive years, as highlighted by one of the InvestingPro Tips, could be a reassuring factor for income-focused investors, particularly in the context of its moderate level of debt.
Additionally, recent performance data shows a strong return over the last month of 16.83%, and an even more impressive three-month total return of 22.74%, underscoring the company's resilience in the short term. While some analysts have revised their earnings downwards for the upcoming period, the stock’s low price volatility and the fact that it is trading near its 52-week high could be indicative of underlying strength in the market's view of the company's prospects.
For investors seeking further insights and a comprehensive analysis, InvestingPro offers additional InvestingPro Tips for Devon Energy. By using the coupon code PRONEWS24, readers can get an additional 10% off a yearly or biyearly Pro and Pro+ subscription to access these valuable tips and stay ahead of market trends.
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