2 Energy Names That Could Move Up On Syria

Includes: DVN, WLL
by: Bret Jensen

Oil prices continue their recent climb on the back of increasing turmoil in the Middle East, especially around Syria and the U.S. response to the Assad regime using gas on its own people. Not surprisingly analysts are chiming in with numerous comments/analysis. UBS came out today with a list of energy concerns that could benefit by the Syria situation continuing to provide a tailwind for energy prices going higher. Here are two E&P names they mentioned that I like on a valuation basis with Syria just providing one more reason to buy their stock.

Whiting Petroleum Corporation (NYSE:WLL) is an independent energy concern producing oil and gas primarily in the Permian Basin, Rocky Mountains, Mid-Continent, Gulf Coast, and Michigan regions of the United States. 85% of the company's ~17mm barrels of reserves are oil and revenues are tracking to just under a 20% gain in 2013. Whiting recently made a $260mm purchase of an additional 17,000 acres in the Bakken that should increase its output initially by just under 2,500 BOE (Barrels of Oil Equivalent)/Day.

Consensus earnings for both FY2013 & FY2014 have moved up 8% -12% over the past two months on this new production. The company has also beat bottom line expectations each of the last three quarters. The shares go for just over 12x forward earnings and 4x operating cash flow. The median price target by the 32 analysts the cover the stock is $62, approximately 20% above the current stock price of $51 a share.

Devon Energy (NYSE:DVN) interests in various properties located primarily in the Rocky Mountains, Mid-Continent, Permian Basin and Gulf Coast regions of the United States. Revenues are tracking towards 12% to 13% in FY2013 and analysts see similar sales increases in FY2014. In addition, consensus earnings estimates for both fiscal years have ratcheted up nicely over the last month. The company has easily beat earnings expectations each of the last four quarters. The average beat over consensus has averaged ~20% per quarter over that time period.

DVN goes for under 11x time forward earnings, a discount to its five year average (13.2). The stock also sells for less than 20% over book value and around 5x operating cash flow. The median price target on the stock by the 26 analysts that cover the stock is $71.50 a share, ~25% above Devon's current share price. In addition to UBS's comments, Canaccord Genuity started coverage on Devon with a "Buy" in August and a Goldman strategist had DVN listed recently as one of his top 40 cheapest stocks.

Disclosure: I am long DVN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.