It may not climb as high as previously thought, but there's still ample room for Devon Energy (DVN 0.19%) stock to run, according to Stifel analyst Derrick Whitfield. Whitfield now thinks that shares of the exploration and production company could rise to $65 (down from $75) over the next 12 months or so. That lowered price target represents a 34% upside from Friday's closing price.
Despite Whitfield's reduced estimate, energy investors may still want to power their portfolios with this leading upstream energy stock.
2024's forecast is underwhelming, but the stock is still a buy
According to Thefly.com, Whitfield's downgrade is a reaction to Devon Energy's fourth quarter 2023 financial results and the company's 2024 outlook. In Q4 2023, Devon Energy reported revenue of $4.15 billion, representing a 3.6% year-over-year decline. Devon Energy projects daily production of 640,000 to 660,000 barrels of oil equivalent (BOE). At the midpoint of guidance (daily production of 650,000 BOE), there would be a decline from the daily production of 658,000 BOE reported in 2023.
While Devon may face a dip in production, there are valid reasons why the company is worthy of investors' buy lists. For one, Devon is generous with its dividend, which currently provides a forward yield of 5% and is a product of the company's innovative fixed-plus-variable dividend framework. Skeptics may question the high-yield payout, but the dividend is clearly sustained by the company's ample free cash flow generation.
DVN Dividend Per Share (Annual) data by YCharts.
Additionally, the company is operating from a position of financial strength. As of the end of 2023, Devon had an investment grade balance sheet as rated by Moody's and S&P Global Ratings. Add to this the fact that the company's hanging on the discount rack -- shares are valued at 7.8 times forward earnings -- and it's clear that Devon is a compelling way for investors to power their passive income streams regardless of the lower price target.
