Devon Energy (DVN 0.74%) continues to find favor among the analyst community. Although analysts at Truist recently lowered their target price on the stock to $66 from $69, the target still implies a near 24% upside potential over the next 12 months or so.
A different take
Truist's position is interesting and slightly different from what other analysts have been saying. Citi recently upgraded its price target to $55 based on an improvement in Devon's natural gas assets, and Wells Fargo raised its rating to overweight and its price target to $59 in anticipation of improvements in well efficiency due to Devon drilling in its core Delaware basin assets.
Truist's view is that the financial industry is still too negative on the oil exploration and production sector, suggesting that they (asset managers) are underweight in the sector. In simple terms, this means Truist feels asset managers, who often sector weight their holdings in line with S&P 500 sector weightings, are holding less than the S&P 500 weightings in exploration and production oil stocks.
This is sometimes seen as a bullish indicator because it implies there's potential for asset managers to allocate more money to the sector and balance their holdings to the S&P 500 sector weightings. Truist believes investors should be "overweight" the sector, so there's even more potential upside.
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Is Devon Energy a stock to buy?
Devon Energy is part of the universe of stocks that Truist likes to play this theme on, and it's hard to disagree. The price of oil is $86 a barrel; OPEC and OPEC+ countries (including energy giants Saudi Arabia and Russia) continue to curtail production, and whoever wins the election, the new U.S. administration will have to replenish the massive drawdown in the strategic petroleum reserve undertaken by the current regime.
Meanwhile, Devon's mix of quality assets, compelling shareholder return policy, and investment strategy make it an ideal stock to buy for oil price bulls.
