Why Devon Energy Corp. Shares Could Pop 20%

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Devon Energy  (NYSE: DVN  ) gained nearly 1% this morning after Wells Fargo upgraded the natural gas and oil company from market perform to outperform.

So what: Along with the upgrade, analyst David Tameron raised his price target to $85-$90 (from $70-$75), representing as much as 22% worth of upside to yesterday's close. So while contrarian traders might be turned off by Devon's year-to-date price strength, Tameron's call could reflect a sense on Wall Street that the company's production growth prospects still aren't fully baked into the valuation.

Now what: According to Wells, Devon's risk/reward trade-off is rather attractive at this point. "Upgrade is primarily based on a combination of the following: improving production visibility which should drive 20%+ crude growth over the next few years (driven by Permian, Eagle Ford and Canada), peer leading EBITDA growth and debt adjusted cash flow per share, and attractive valuation," said Tameron. With Devon shares still sporting a reasonable EV/EBITDA of 5.4 -- in line with peers -- it's tough to disagree with Wells' bullishness. 

Do you know this energy tax "loophole"?
You already know record oil and natural production is changing the lives of millions of Americans. But what you probably haven’t heard is that the IRS is encouraging investors to support our growing energy renaissance, offering you a tax loophole to invest in some of America’s greatest energy companies. Take advantage of this profitable opportunity by grabbing your brand-new special report, “The IRS Is Daring You to Make This Investment Now!,” and you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2980531, ~/Articles/ArticleHandler.aspx, 9/18/2014 11:43:09 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement