Devon Energy Added To Bank Of America's List Of Top Ideas

Devon Energy Corp DVN has “unique leverage to an oil recovery,” Bank of America's Doug Leggate said in a report. He reiterated a Buy rating on the company, while raising the price objective from $56 to $60. The US Energy Sector was upgraded to Overweight, while Devon Energy was added to the list of top ideas across the US market.

Attractive Valuation

Oil could recover significantly over the next 12 months, with the average oil price expected to be ~$60 in 2017, with a spot price target of ~$70 at mid-year. Valuations across the sector have risen substantially from their February lows.

Leggate pointed out that Devon Energy’s stock was among the “lowest ‘discounted’ oil prices in the sector,” although the company had the “operational torque and expected incremental portfolio disclosures” needed to support both absolute and relative outperformance over the next twelve months.

Value And Portfolio

Management made higher-than-targeted asset sales to significantly increase the balance sheet strength. The company has planned a legacy asset base tied to oil sands, which boosts FCF from a fully funded annuity production stream, “with potential for binary value recognition under our base case oil outlook for 2017,” Leggate mentioned.

“However it is the potential to redeploy cash to a portfolio repositioned with material exposure in two of the highest return plays in the Lower US 48 that we believe can drive a rate of change in cash flow per share vs the base business with DVN poised for a series of upward revisions to declared type curves in the Delaware Basin and Oklahoma STACK plays, likely in 2H16,” the analyst further wrote.

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