Devon EnergyDevon Energy (DVN) is an independent energy company involved in oil and gas exploration, development and production. It also acquires existing producing properties. Devon recently acquired the Eagle Ford shale acreage from GeoSouthern Energy for $6 billion. Oil analysts consider this to be one of the most attractive drilling areas in the U.S. This follows a pattern of Devon selling off assets in Canada and elsewhere offshore and investing the proceeds in domestic properties. This emphasis on U.S. shale oil properties has helped drive DVN to a new 52 week high above 80.
On June 30 Devon announced the final piece in its divesture plan, selling its non-core U.S. oil and gas assets to Linn Energy (LINE) for $2.3 billion and acquiring additional shale oil assets from Linn as part of the swap. Analyst David Tameron at Wells Fargo commented that the price Devon received was higher than expected. This will enable DVN to pay down long-term debt even further thus improving its balance sheet and positioning itself for further shale oil acquisitions.
Wells Fargo recently upgraded Devon to an outperform rating with a price target of 85 – 90. Bank of America weighed in with a revised upside target of $100. This stock has been a perennial favorite of market guru Jim Cramer, who owns DVN in his foundation.
Devon reports earnings on 8/7/2014 with current quarterly estimates at $1.41 and annual earnings forecast to come in at $5.87 vs. $4.26 last year. With a price/earnings ratio of under 14, Devon sells at a lower multiple than the market as a whole and is expected to see revenue growth of 40% this year. Devon’s valuation looks cheap relative to other energy stocks like Anadarko Petroleum (APC), Apache Corp (APA) and Chesapeake Energy (CHK).
Devon’s increased focus on U.S. shale oil and away from natural gas properties has been a driving force behind recent brokerage firm upgrades and should continue to propel the stock to new highs. The strength in energy stocks is expected to continue and DVN should benefit from overall industry trends.
The recent pullback of 2 points didn’t even approach strong support in the 76.5 – 77.5 area.
Devon’s very bullish Chaikin Power Gauge rating is driven by very bullish technical as well as insider buying and increasingly bullish analyst ratings and earnings estimate increases. DVN is in the very strong Oil Exploration and Production group which has helped to put the wind at its back, as the Energy sector has led the market’s drive to new highs.
Devon Energy (DVN)