Citi: Time To Buy Devon Energy, Stock Can Nearly Double

• Devon Energy Corp DVN shares have been trending south in recent months and are down 50 percent since October 28.
• Citi’s Robert S Morris resumed coverage of the company with a Buy rating and a price target of $45.
• The company is poised for increased production levels, and recent acquisitions are likely to boost its inventory of future drilling locations, Morris stated.

Analyst Robert Morris mentioned that Devon Energy’s shares trade at a discount to oil-levered large-cap E&P peers. The company’s total oil production is expected to increase by about 1 percent this year, with oil volumes likely to rise by around 5 percent, based on Citi’s current commodity price deck.

“However, at current NYMEX strip prices, Devon's total production would likely decline ~3% but with oil output still up ~2%.,” Morris wrote.

The analyst expects Devon Energy to keep its total capital spending within the level of its cash flows and proceeds from the monetization of the Access pipeline, EnLink distributions and net of dividends.

The $2.5 billion acquisitions of STACK and PRB are likely to significantly boost Devon Energy’s inventory of future drilling locations. The planned acceleration of activity in the STACK play in 2016 is likely to come at the expense of Eagle Ford and Delaware Basin, Morris mentioned.

The company plans to sell $2-3 billion of its non-core assets, including its interest in the Access pipeline, during 1H16 in order to offset the leverage added by the Felix transaction.