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Devon Energy Finally Surprises On The Upside

The Oklahoma City oil and gas company is improving investor confidence by selling assets, buying back stock, boosting its dividend and paying back debt.

Devon – which is led by CEO Dave Hager (pictured) – needed the good news. Its stock has been a big underperformer over the last year. (Photo by Matthew Busch/Bloomberg)

Devon Energy finally surprised on the upside this week.

The Oklahoma City oil and gas company announced late Wednesday that it had sold $553 million worth of properties in North Texas' Barnett Shale, reaching its $1 billion divestiture target. It also plans to buy back $1 billion of its stock (or about 6%), boost its quarterly dividend by 33% to 8 cents per share and pay back $1 billion in debt.

The company's stock jumped 4.68% on the news to $32.40 per share.

Analysts were jazzed. Seaport Global Securities said in a note that it likes the company's move to sell mature, declining natural gas assets for a "relatively attractive" 5.5 times cash flow and directing the proceeds into its stock. 

The firm points out Devon's remaining exposure to high-quality, rapidly-growing assets in the Stack area in Oklahoma and the Delaware Basin of West Texas and New Mexico (which are on track to grow 40% this year) and its "more than comfortable" leverage levels.

Devon – which is led by CEO Dave Hager – needed the good news. Its stock has been a big underperformer, trading down 23% over the last year (as of Wednesday's close) and 28% year-to-date.

The company hopes to complete another $1 billion in divestitures, which analysts at Tudor, Pickering, Holt think could include properties in the Delaware as well as the Powder River Basin. "We look to another $3 billion to $4 billion of value from the remaining Barnett and Eagle Ford assets over the medium-term," they said.