Thursday, November 4, 2010

Devon Energy (NYSE:DVN) Undervalued on Onshore Resource Plays Says Ticonderoga

Devon Energy (NYSE:DVN) is undervalued in almost all the key valuation metrics against its peers, and Ticonderoga Securities said they're maintaining their "Buy" rating on them as a result.

"We view DVN as an undervalued asset base that should generate better results given the shift in focus toward onshore unconventional resource plays. And with $3.6B of cash on hand currently (excluding the expected $3.2B close of Brazilian assets), the company is in a strong financial position as well. The company’s shares are trading below peers on almost all relevant valuation metrics, including at a steep discount to our $118.00 NAV. The resulting P/NAV of 66% compares with a group median of 78% for our E&P universe. DVN’s EV/2010 EBITDA is 5.0 compared with 7.1 for the group and its P/CF is 5.9 compared with 6.4 for the group, said Ticonderoga.

"Today’s news (earnings report) is positive and supports our Buy rating, and should please investors who have been looking for consistent results/growth from DVN quarter-to-quarter. We would look toward the year-end reserve report for signs of better organic growth and improving finding cost as an indication that the company’s resource strategy is working long-term. We don’t believe the sharp discount to peers is justified, and would continue to look for periods of weakness when the stock/group trades down to accumulate shares."

Devon surged to close at $68.22 Wednesday, gaining $2.29, or 3.47 percent. Ticonderoga has a price target of $78 on Devon.

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