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Investors slow to embrace 'new Devon'

Devon Energy Corp.'s stock has dropped for three straight days since it announced a $6 million deal to buy into the oil-rich Eagle Ford Shale, but analysts are optimistic about its future.
BY JAY F. MARKS Modified: November 24, 2013 at 3:00 pm •  Published: November 24, 2013

Devon Energy Corp. has announced a pair of bold moves lately meant to boost its lagging stock performance.

It hasn't happened yet, but industry analysts who follow the Oklahoma City-based company expect Devon's stock to reach as high as $86 a share.

That is nearly $20 more than its highest point in the past year.

Devon's stock closed Friday at $62.58 a share, losing ground for the third straight day since the company announced a $6 billion deal to buy into the lucrative Eagle Ford Shale in south Texas.

Edmond financial adviser Greg Womack said investors seem tentative in embracing Devon's path.

“I think now the markets may be waiting to see how they execute their plan from here,” said Womack, president of Womack Investment Advisers Inc. “If Devon can execute on their growth plan and effectively complete its asset sale process, the stock could be even more attractive.”

Oppenheimer analyst Fadel Gheit said Devon's proposed midstream partnership with Dallas' Crosstex Energy LP will allow the company to focus its spending on its upstream business.

That business will get a big boost from this week's Eagle Ford deal, which Devon estimates gives it access to recoverable resources of at least 400 million barrels of oil equivalent.

“After transforming itself earlier this decade into a pure-play North American onshore E&P (exploration and production company), Devon again is taking bold steps with this acquisition,” Gheit wrote in a note to investors. “It gives the company a sizable, de-risked position in the Eagle Ford Shale, one of the major unconventional oil plays (along with the Bakken) missing from its diversified portfolio.”

He set a price target for Devon's stock at $75 a share.

Canaccord Genuity analyst Robert Christensen was more optimistic, setting his target at $86 in a Wednesday note to clients.

Christensen estimated Devon's production profile will be 40 percent crude oil by 2015, up from only 24 percent before its deal with GeoSouthern Energy Corp.

“We see DVN's transformation as instrumental in helping it achieve a significantly higher valuation for its E&P business,” Christensen wrote.

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