Shares of Devon Energy (NYSE: DVN) might have shot up by 16 percent so far in the year, that hasn’t changed the fact that some of Wall Street’s top industry experts have warned investors to stay away from the company.
Goldman Sachs reinstated coverage of the $10 billion energy company, giving it a “sell” rating and warning that its current price range is largely unjustified.
Despite the fact that Devon has risen by a significant margin this year, outperforming the SYP Oil & Gas Exploration 7 Production ETF in the process, the stock is still down 41 percent in comparison to where it was trading 12 months ago.
Goldman Sachs analyst Brian Singer wrote in a note on Tuesday morning that the company has seen overly high valuations thanks to its U.S. onshore assets in the Permian Basin. While the company sold its poorer performing Canadian energy assets for $2.8 billion, resulting in a surge in cash, this Singer argues has led to a temporary overvaluing of the stock.
“However, we believe [year-to-date] outperformance…is not reflective of the remaining company’s less attractive corporate positioning vs. peers. With the Canada sale now complete, we believe a major catalyst for recent outperformance has played out, and we see the relative positioning of remaining assets with respect to cost, returns and debt-adjusted growth as undifferentiated,” he wrote, calling Devon’s current evaluation as “too rich” in comparison to its competitive positioning. “The Permian…showed strong well performance in 2018 and appears on track for further improvement in 2019 in part as the company high-grades its drilling program; however, we believe credit for Permian resource is already adequately priced in and that upside to longer-term expectations/execution would be needed for greater resource credit.”
The analyst currently has a $25.5 price target on the stock, which is roughly 5 percent below where it was trading on Tuesday afternoon. Shares of Devon energy fell by just 0.76 percent in response to the news by the end of the day. However, shares had dipped down as much as 5 percent before regaining some of that value.
Over the past few months, shares of the energy company have gone up somewhat, rising during the first four months of 2019 significantly before giving back all of those gains by July and ending the first half of the year on a milder upturn.
However, analysts are unsure how long this will last before a potential correction will take place. In the meantime, it’s hard to recommend Devon for anything more than short-term traders.
Devon Energy Company Profile
Devon Energy, based in Oklahoma City, is one of the largest independent exploration & production companies in North America. The firm’s asset base in spread throughout onshore North America with franchise development assets in the Stack and Delaware Basin. Other shale assets include acreage in the Eagle Ford, Powder River Basin, and Barnett.
The company also holds oil sands operations in Alberta, Canada. At year-end 2018, Devon’s proven reserves totaled 1,927 million barrels of oil equivalent, or boe, with net production of 535 mboe/d. Oil and natural gas liquids made up 66% of production and 59% of proven reserves. – Warrior Trading News
