BMO Raises Cash Flow And Earnings Estimates For Devon Energy

BMO has raised its cash flow and earnings per share estimates for Devon Energy Corp DVN saying that the use of Midland Basin sale proceeds for capital expenditure and increased guidance for core production should be accretive to earnings.

The brokerage has increased its 2016 estimates for cash flow per share to $2.62 from $2.52 and EPS view to ($0.89) from ($0.96).

Devon announced the sale of its non-core assets in the Midland Basin for $858 million, bringing its total non-core asset sales to $2.1 billion, which is expected to beat or above the top end of its $2 billion–$3 billion guidance following the sale of Access.

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"This implies ~$0.8–1.0 billion for Access, with the midpoint above our $0.8 billion estimate," analyst Phillip Jungwirth wrote in a note.

The company also raised its 2016 core production guidance by 7MBoe/d to 540-560MBoe/d on better-than-expected well results. Assuming core production is at the high end of the second quarter outlook (551MBoe/d), the analyst said the forecast implies about 534MBoe/d in the second half of 2016.

"In 2017, we model 521MBoe/d of core production on $1.8–1.9 billion E&D capex, with oil growing Q/Q beginning in 2Q. This positions Devon to grow oil by 11 percent in 2018 (7 percent total), while spending to cash flow at our $61Bbl and $3.25Mcf price deck," Jungwirth added.

Jungwirth has an Outperform rating and $40 price target on the shares of Devon Energy, which are currently flat on the day.