The setup for shares of Devon Energy looks rosier despite its recent streak of underperformance, according to Goldman Sachs. Analyst Neil Mehta upgraded the energy stock to buy from neutral, citing its attractive valuation and improving confidence in the capital expenditures and production outlook. “While we do not expect DVN to beat its guidance and consensus production expectations, we believe shares are trading at a discount to peers and potentially pricing in concerns around further execution missteps relative to other large-cap peers,” he wrote in a Tuesday note to clients. Energy stocks have underperformed this year after a solid 2022 as oil prices decline from record highs. Devon Energy stock’s shed 19.7% this year. Shares added 1.7% before the bell With the Wall Street firm’s revised $58 price target, down from $63 a share due to to lower oil prices over the long term. The target implies 17% upside from Monday’s close. According to Mehta, the company’s recent underperformance beginning with 2022 third-quarter results stemmed from higher capital expenditures stemming from a combination of increased material and service costs and lower production. DVN YTD mountain Devon Energy shares slump nearly 20% “However, following the relative underperformance vs. other large-cap peers, we believe that valuation is becoming more compelling, and see potential for well costs to reduce a function of lower raw material costs (tubulars, sand, among others), and modestly lower pricing,” he said. Mehta also views improving productivity trends and capital returns potential as likely upside contributors from here. Through dividends and shares repurchases, he expects Devon to return 10% of its market cap versus 8% among his large cap peers. — CNBC’s Michael Bloom contributed reporting
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