Are Investors Underappreciating Devon Energy?

Argus maintained its Buy rating on Devon Energy Corp (NYSE: DVN) and raised the price target by $10 to $51, implying a potential return of about 16 percent.

"We believe that Devon's focus on liquids production in unconventional North American plays is underappreciated by investors. In addition, the stock's valuation discount relative to peers appears unwarranted based on the company's low leverage, cash flow visibility, and access to liquidity," analyst Bill Selesky wrote in a note.

Selesky expects Devon's concentrated acreage positions in the Permian basin and the Eagle Ford shale to make it more profitable on a cost-per-barrel basis amid improving well productivity and lower operating costs.

"We also expect the company to benefit from increasing liquids production following its acquisition of GeoSouthern acreage and a number of noncore asset sales," the analyst continued.

Devon has raised its 2016 production guidance for core assets by 3 percent to 543,000 boe/d, at the low end of the range, from a prior 528,000 boe/d, based on its stronger-than-expected second quarter performance. The new guidance range is 543,000-560,000 boe/d.

Selesky narrowed his 2016 loss estimate to $0.39 per share from $1.32 per share, reflecting Devon's higher production forecast, despite continued commodity price weakness and relatively flat margins. The consensus calls for a net loss of $0.35 per share.

Devon shares have outperformed since the beginning of 2016, rising 37.7 percent while the S&P 500 Energy index has risen 15.6 percent.

At time of writing, shares of Devon Energy gained 2.74 percent to $45.31.