Devon Energy (DVN 0.29%) stock has moved in line with oil prices this year, so it's no surprise that a decline in the latter has led to a sell-off in recent months. The charts show that. The lower diagram shows the correlation between Devon's stock and oil spot prices.
Devon Energy's price targets
As such, it's no surprise that Wall Street analysts have been lowering price targets on Devon Energy in recent weeks, as oil prices have declined from the mid-$80s in the summer to $72. Truist followed suit after several price target downgrades from JPMorgan, Mizuho, and Morgan Stanley.
That said, all the analysts at the companies named and Truist's analyst have the equivalent of a buy rating on the stock. Furthermore, the Truist analyst believes the oil price will find support at $65 a barrel.
Three reasons Devon Energy is an outstanding stock to buy
If the analyst is correct, Truist is an attractive stock, especially for income-seeking investors. For example, on the second-quarter earnings call, management argued that with a price of oil of $70, its free cash flow yield (FCF) would be around 9% in 2024, based on the stock price of around $42.80.
Interpolating that figure with the current price gives Devon a yield of about 9.4%. That's enough to allow Devon to increase its variable dividend or prioritize share buybacks.
Second, recent tensions in the Middle East raise the possibility of oil supply disruptions, which could result in higher prices. Investors may want to hedge against this possibility by buying some oil stocks.
Image source: Getty Images.
Finally, the market is discounting Devon Energy because of its acquisition of assets in the maturing Bakken oil field.
Still, its core assets remain in the more productive Permian region, and in any case, an FCF yield of 9.4% implies that it will generate the entire company's value in FCF within 11 years. As such, the stock looks like a great value.
