This is one of those unusual situations whereby a Wall Street firm lowers its price target on the stock, but even the lowered price target still implies a 42% upside for the stock. That happened recently when Siebert Williams Shank lowered its price target on Devon Energy (DVN -1.99%) from $58 to $50 while maintaining a buy rating on the stock.
The price target cut
The case for lowering the price target is entirely plausible. President Donald Trump has called for lower prices, OPEC+ has agreed to raise production, there are fears of lower global growth induced by the ongoing tariff conflict, and the new administration is encouraging oil production in the U.S.
Why Devon Energy stock is a buy
While the bearish case for oil is valid, it's a good idea to point out two things:
- Oil is currently at almost $68 a barrel, traditionally an excellent level for oil and gas producers.
- Devon Energy management's guidance for 2025 calls for at least $3 billion in free cash flow (FCF) based on a price of oil of $70.
Image source: Getty Images.
Devon's market capitalization is $22.75 billion at the time of writing, and a price target of $50 implies a market cap of $32.5 billion. In other words, if the price of oil holds up, Devon will generate 13.2% of its current market cap in FCF and 9.2% at the target price of $50.
If you are agnostic about the price of oil, Devon Energy looks like a great value; if you are bullish on oil, it's a fantastic opportunity. It strikes me that even if you are mildly bearish, there's enough margin of safety to make Devon look like a good value.
The Wall Street firm's call makes perfect sense.
