Devon Price Target Boosted ~30% By Citigroup

Shares of Devon Energy DVN may face upward pressure following and upgrade to buy and price target increase from $75 to $96 per share (21.2 percent upside from Friday's close).

One of the key reasons for the upgrade is an increase in the estimated net asset value to $112 per share. Analyst Robert Morris writes, “we believe the market is not fully recognizing the value of Devon’s midstream assets via its ownership interest in Enlink (MLP) and Enlink Midstream (GP) and the potential for future dropdowns from its Canada and Eagle Ford midstream assets.”

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Others fundamental comments include increases in production and a strong balance sheet. Citigroup sees Devon increasing its total production at a six percent compounded annual growth rate through 2020, driven by a 10 percent growth rate in oil. The strong balance sheet could lead to strategic acquisitions or stock buyback.

Regarding valuation, Morris writes, “Up until this year, Devon’s stock had significantly lagged its peers over the prior five years due to its limited exposure to or inventory of opportunities to grow its oil production, high exposure to low growth natural gas and NGL assets, as well as wide Canadian heavy oil price differentials.” The $96 price target is based on 6.7 times EV/DACF or 86 percent of NAV.

Shares of are up nearly one percent to $79.99 in early Monday trading.