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On Monday, Devon Energy (NYSE:DVN) has been reiterated with a Hold rating and a $52.00 stock price target by TD Cowen. The energy company recently announced the acquisition of Williston Basin operator Grayson Mill for $5 billion, which includes a payment structure of 65% cash and 35% equity. Concurrently, Devon Energy increased its share buyback program from $3 billion to $5 billion.
The acquisition is set to enhance Devon Energy's scale in the Bakken region, adding approximately 100 thousand barrels of oil equivalent per day (MBOED) and 500 undeveloped locations. The assets acquired are established and are expected to be accretive, with the purchase price being below 4 times EBITDA, compared to Devon's previous multiple of 4.2 times the estimated 2025 EBITDA.
TD Cowen's analysis indicates that the deal should lead to a 6% increase in Devon's 2025 estimated distributable cash per share (DCPS), a 13% rise in free cash flow per share, and a slight compression in the EBITDAX multiple to 4.10 times the 2025 estimate.
The strategic acquisition and the expansion of the buyback program reflect Devon Energy's focus on growth and shareholder returns. The company's actions are aimed at strengthening its position in the Bakken area and enhancing its financial metrics, as outlined by the updated estimates following the deal.
In other recent news, Devon Energy has been actively engaged in the energy sector. The company announced a significant $5 billion acquisition of Grayson Mill Energy's Williston basin operations from private equity firm EnCap. This acquisition is expected to add approximately 500 new wells to Devon's portfolio and contribute an additional 307,000 net acres to the company's Williston Basin holdings. As a result, Devon's production is projected to increase to 765,000 barrels of oil equivalent per day.
In parallel, Devon Energy has also made a $5 billion private acquisition in the Bakken shale region. This deal, structured with 65% cash and the remainder in stock, is expected to enhance shareholder returns, particularly through stock buybacks. Truist Securities maintained a Buy rating on Devon Energy, highlighting the quality of the assets added to Devon's portfolio through these transactions.
On the personnel front, Devon Energy appointed John Bethancourt as the new independent chair of its board, effective July 1, 2024. However, Devon Energy faced setbacks in securing other deals, being outbid by ConocoPhillips (NYSE:COP) and Occidental Petroleum (NYSE:OXY) for Marathon Oil (NYSE:MRO) and CrownRock, respectively. Despite these challenges, analysts believe that Devon is likely to secure a deal in the future as it addresses its production issues. These are among the recent developments for Devon Energy.
InvestingPro Insights
As Devon Energy (NYSE:DVN) moves forward with its strategic acquisition of Grayson Mill and the expansion of its share buyback program, the company's financial health and market performance remain critical for investors. According to InvestingPro data, Devon Energy boasts a robust market capitalization of $29.39 billion and an attractive P/E ratio, last recorded at 8.83 for the last twelve months as of Q1 2024. This valuation metric underpins the company's profitability, which is further supported by a strong gross profit margin of nearly 54% over the same period.
An InvestingPro Tip highlights that Devon Energy has maintained dividend payments for 32 consecutive years, showcasing its commitment to shareholder returns. This is particularly noteworthy given the company's dividend yield standing at 4.44%, reflecting a significant component of total shareholder return. Additionally, Devon Energy has been profitable over the past twelve months and analysts predict it will remain profitable this year, aligning with TD Cowen's positive outlook on the company's financial metrics post-acquisition.
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