Written by Sam Bogda
EOG Resources Inc (NYSE:) and Permian Resources Corp (NASDAQ:) have been upgraded, while Devon Energy (NYSE:) downgraded by a JPMorgan analyst on Thursday.
JPMorgan upgraded EOG shares (price target raised to $156 from $154) and Permian Resources (price target kept at $12) to Overweight from Neutral, while downgrading Devon to Neutral from Overweight (price target kept at $12) $83).
The analyst made the changes based on the relative valuation.
“EOG stock has under-rated compared to its basic shale peers including DVN. In fact, DVN stock has outperformed EOG by about 80% in the past 12 months and 160% in the past three years,” the analyst explained. โEOG is now trading at 2023/2024 EV/DACF multiple below DVN (5.5x/5.8x vs 6.1x/6.7x) and returns slightly above FCF. We believe strong on-field execution, and the potential for upward cash flow from should help The LNG supply deal and the recent establishment of a formal ROC framework in 2022 is a relative multiplier.โ
In the Permian, the analyst said they “expect PR to deliver an attractive mix of substantial cash returns paired with varying volume growth while trading a lower turn than its 2023 DACF peers and a premium on FCF metrics.”
Finally, the analyst wrote of Devon: “Our reduction of DVN shares is essentially an invitation to valuation as the company has been making all the right moves in terms of capital allocation and execution in this area.”
โThe stock is now trading at a premium peer group price. In addition, the company has announced two cumulative A&D deals in Bakken and Eagle Ford, which will coincide with higher levels of cash return for shareholders and an acceleration in the timing of buybacks. While the latest transactions Strategically logical, we believe that a relatively noteworthy second transaction could start to affect the company’s multiples as deals are heavier on PDP value versus stock depth.”
