Shares of the leading oil and gas producer Devon Energy (NYSE:DVN) have corrected by over 16% since it announced its fourth-quarter earnings on February 14. The Q4 earnings miss and near-term production challenges act as a dampener. However, the company’s reasonable valuation, ability to return cash to shareholders and strong balance sheet keep Siebert Williams Shank & Co analyst Gabriele Sorbara bullish on DVN stock.
It’s worth highlighting that Sorbara’s price target of $86 implies a significant upside potential of over 60%.
While Sorbara rated DVN stock a Buy, he sees the company’s guidance as less efficient. The analyst said Devon’s “1Q23/2023 guidance was less efficient with a higher capex, lower production volumes, and higher overall cost structure.”
Devon expects its first-quarter production volumes to remain subdued due to fewer wells coming online. Further, infrastructure downtime is negative. However, the company does expect its production volume to ramp up as the year progresses.DVN expects total production of 643‐663 Mboe/d in 2023 compared to the Street’s projection of 662.2 Mboe/d.
While Sorbara is disappointed with the capex/production outlook, he reaffirmed his Buy rating on DVN stock due to its valuation. The analyst said that DVN stock is trading at a 2023 EV/EBITDA multiple of 5.5 compared to the peer group average of 5.2, which is reasonable. Further, the analyst highlighted the company’s strong balance sheet and a low net‐debt/EBITDA leverage of 0.5.
Is DVN a Good Stock to Buy Now?
Including Sorbara, eight analysts rated DVN stock a Buy and five analysts have a Hold recommendation. It carries a Moderate Buy consensus rating on TipRanks. Meanwhile, analysts’ average price target of $73.08 implies 36.37% upside potential.
While analysts are cautiously optimistic, DVN stock has positive signals from insiders and hedge funds. Devon carries a Smart Score of nine, implying DVN is more likely to outperform the broader market.
Bottom Line
The near-term production headwinds and industry-wide inventory build could pose challenges for DVN. However, its low leverage profile positions it well to return substantial cash to its shareholders in the coming years.
