My regular readers know that my favorite mid-major energy concern right now is Devon Energy (NYSE:DVN). The company has sold off assets overseas and in Canada, and reinvested its funds to acquire and grow its production from right here in the United States.
Although the stock has gained more than 40% and is trading at 52-week highs, since I started accumulating shares in the low $50s late last year, the value story for Devon continues to grow. Analysts are starting to recognize and applaud the positive investment case on this growing mid-major.
Wells Fargo upgraded the shares to "Outperform" from "Market Perform" last week and bumped its price target into the range of $85 to $90 a share on Devon. Wells Fargo's analyst cited Devon's "improving production visibility that should drive 20+ percent crude growth over the next few years, driven by Permian, Eagle Ford and Canada and also says the expanding margins and EBITDA expected to grow ~32 percent over the next few years".
Bank of America is even more bullish on the prospects for Devon Energy. It resumed coverage on the shares this week and slapped a $100 a share price target on the stock, and stated management has "exceeded" expectations. It also believes when adjusted for the value of its public holdings, the firm believes DVN stands on the lowest multiple in the sector. Finally, the Maestro of Mad Money Jim Cramer is positive on Devon's prospects and belies the stock can hit $90 a share. Consensus earnings estimates for FY2014 have moved up a bit over the past month as well
Even after the recent run in this stock, the shares are not expensive. The stock goes for just over 13x forward earnings, a discount to the 16x to 17x forward multiple of the overall market. In addition, Devon is growing revenues and earnings much, much faster than equities in general. Earnings are tracking to a 35% year-over-year gain in 2014. Revenues look like they will increase some 40% this year driven to a large part to the production coming from the company's recent $6B purchase in the Eagle Ford.
The company has a solid balance sheet, production is growing more "oily" and the stock also pays a 1.3% dividend. While not the screaming buy it was when I started to accumulate a stake last summer, the shares are still cheap compared with the overall market. Given the increasing positive sentiment coming from analysts and pundits recently, the shares continue to look attractive. ACCUMULATE
Disclosure: The author is long DVN. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.