JPMorgan Upgrades Devon Energy to Overweight, Citing FCF Strength and Optimization Progress

Core Viewpoint - JPMorgan upgraded Devon Energy to Overweight from Neutral, citing attractive relative valuation and free cash flow accretion from a $1 billion business optimization plan as significant catalysts [1] Group 1: Business Optimization and Performance - Devon Energy achieved approximately 60% of its optimization goal within 6.5 months of launching the initiative [2] - The company experienced a decline in Delaware Basin well productivity in 2025 due to a higher mix of Wolfcamp B wells, but productivity is expected to stabilize in 2026-27 as the development mix normalizes [2] Group 2: Financial Projections and Valuation - Devon previously provided softer guidance for 2026, projecting total production of 845 Mboe/d and capital spending of $3.60 billion [3] - JPMorgan's updated models forecast free cash flow of $2.57 billion in 2026 and $2.75 billion in 2027, indicating free cash flow yields of 11.5% and 13.0%, which are significantly above peer averages of 9.3% and 9.8% [3] - The firm's December 2026 price target of $44 represents 90% of its net asset value estimate, suggesting approximately 17% upside based on recent strip pricing [3]