Goldman Sachs Upgrades Devon Energy, But Is Less Bullish On EOG Resources: Here's Why

U.S. exploration and production (E&P) companies have underperformed other energy stocks so far this year due to higher costs driven by inflation and weaker oil and gas prices.

While natural gas prices may remain subdued, well costs could decline by 5%-10% in the back half of 2023 and going into 2024, according to Goldman Sachs.

The Energy Analyst: Neil Mehta upgraded Devon Energy Corp (NYSE:DVN) from Neutral to Buy, while maintaining the price target at $58. He downgraded EOG Resources Inc (NYSE:EOG) from Buy to Neutral, while keeping the price target unchanged at $130.

Check out other analyst stock ratings.

Goldman Sachs On Devon Energy

  • Devon Energy’s stock has underperformed peers since the company reported results for its third quarter of 2022, “which we believe was a function of higher capex (due to higher raw material costs/service costs) and lower production (due to midstream outage/weather related downtime) relative to consensus expectations,” Mehta said.
  • “However, following the relative underperformance vs. other large-cap peers, we believe that valuation is becoming more compelling, and see potential for well costs to reduce a function of lower raw material costs (tubulars, sand, among others), and modestly lower pricing,” he added.

Goldman Sachs On EOG Resources

  • EOG Resources is likely to record lower free cash flows than peers in 2023 and 2024, “given our less bullish outlook for natural gas prices,” the analyst wrote.
  • “We also see lower impact on the cost structure from deflation given EOG is seeing less inflation this year due to its supply chain management and self-sourcing efforts,” he added.

DVN, EOG Price Action: Shares of Devon Energy had risen by 2.85% to $50.81 and EOG Resources by 0.41% to $114.23 at the time of publishing Tuesday.

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