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EOG Resources Inc (NYSE:EOG) and Permian Resources Corp (NASDAQ:PR) were upgraded, while Devon Energy (NYSE:DVN) was downgraded by a JPMorgan analyst on Thursday.
JPMorgan upgraded shares of EOG (price target raised to $156 from $154) and Permian Resources (price target maintained at $12) to Overweight from Neutral, while they downgraded Devon to Neutral from Overweight (price target kept at $83).
The analyst made the changes based on relative valuation.
“EOG’s stock has de-rated relative to its core quality shale peers including DVN. In fact, DVN shares have outpaced EOG by nearly 80% over the past 12-months and 160% over the past three years,” the analyst explained. “EOG is now trading at a lower 2023/2024 EV/DACF multiple than DVN (5.5x/5.8x vs. 6.1x/6.7x) and slightly higher FCF yields. We think strong execution in the field, upside cash flow potential from the LNG supply deal, and the recent establishment of a formal ROC framework in 2022 should help the relative multiple.”
On Permian, the analyst said they “expect PR to deliver an attractive combination of significant cash return paired with differentiated volume growth while trading a turn below peers on 2023 DACF and at a premium on FCF metrics.”
Finally, writing about Devon, the analyst stated: “Our downgrade of DVN shares is essentially a valuation call as the company has been making all of the right moves in terms of capital allocation and execution in the field.”
“The stock is now trading at a premium valuation to the peer group. In addition, the company has announced two accretive A&D transactions in the Bakken and Eagle Ford, which will coincide with higher levels of cash return to equity holders and an acceleration in the timing of buybacks. While the latest transactions make strategic sense, we do think the second relatively noteworthy bolt-on transaction could start to impact the company’s multiple as the deals are heavier on PDP value vs. inventory depth.”
