A Hidden Gem in the Energy Sector
With a staggering 28% decline in 2024, Devon Energy (NYSE: DVN) has been unfairly punished by the market. Despite the company’s strengthening business and favorable oil prices, the stock has taken a beating. However, this downturn presents a unique opportunity for savvy investors to snap up a great value.
A Strategic Acquisition
Devon Energy’s $5 billion deal to acquire Grayson Mill Energy raised eyebrows, but the market’s concerns may be misplaced. The acquisition adds significant assets in the Williston Basin (Bakken) in North Dakota, which, although not as highly valued as the Permian region, still offers substantial growth potential. Moreover, Devon’s post-deal projections indicate an outstanding value proposition.
Free Cash Flow Galore
Based on management’s preliminary 2025 outlook, Devon Energy is expected to generate a free-cash-flow (FCF) yield of 9.9% at a price of oil of $70 per barrel, assuming the current stock price of $34.88. This substantial yield provides ample opportunity for management to return cash to shareholders.
Operational Progress
Devon Energy has made significant operational strides, improving productivity by 20% in its core Delaware Basin assets. The company expects production volumes of 800 thousand barrels of oil equivalent per day (mboed) in 2025, a 5% increase from initial projections. Furthermore, the acquired assets are expected to exceed initial expectations, with early wins on sharing infrastructure and inventory.
Capital Allocation
Wall Street analysts expect $2.78 billion in FCF in 2025, which management plans to allocate towards share buybacks and debt repayment. While this may disappoint income-seeking investors, it makes long-term sense, as reducing debt lowers interest payments and increasing existing shareholders’ claims on future cash flows and dividends.
A Great Value Opportunity
With the price of oil cooperating, Devon Energy stock has significant upside potential in 2025. The current valuation presents a rare opportunity to buy a great company at a discount. Don’t miss out on this chance to invest in a stock that could potentially pop.
Don’t Miss the Boat
Our expert team of analysts has a track record of identifying companies with immense growth potential. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. See three incredible companies that are poised for success and may not offer another chance like this anytime soon.
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