Devon Energy and WPX Energy on Dec. 30 both announced that their shareholders approved the all-stock merger between the two companies. Shares of Devon rose 5.4% and WPX gained 6.1% at the close on Wednesday.
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The merger is expected to close on Jan. 7, 2021. At the special meeting held on Dec. 30, over 99% of the votes cast by Devon’s and WPX’s shareholders were in favour of the merger.
“This is an important milestone as we move toward uniting our complementary assets to create a leading U.S. energy company, with a focus on accelerating free cash flow growth and the return of capital to shareholders,” said Devon Energy (DVN) CEO Dave Hager.
The merger agreement was first announced on Sep. 28. According to the agreement, the combined company will be named Devon Energy and is expected to benefit from enhanced scale, improved margins, higher free cash flow and dividend strategy.
As part of the deal, WPX (WPX) shareholders will receive a fixed exchange ratio of 0.5165 shares of Devon common stock for each share of WPX common stock owned. Following the transaction, Devon and WPX shareholders will own 57% and 43% of the combined company, respectively, on a fully diluted basis.
In reaction to the merger deal, Truist analyst Neal Dingmann on Dec. 23 raised the price target on DVN stock to $19 from $14 and reiterated a Buy rating. The new price target implies close to 18% upside potential.
According to Dingmann, there are a number of potential catalysts ahead to go along with the synergies and other positive metrics that surround the upcoming merger with WPX Energy.
Dingmann believes Devon would continue to be as disciplined as any E&P [exploration & production] maintaining its low leverage of ~1x and targeted growth up to 5% annually, if prices remained at least at current levels.
The analyst estimates that the company could potentially generate free cash flow of over $1.2 billion in 2022. (See DVN stock analysis on TipRanks)
From the rest of the Street, the stock scores an analyst consensus of a Strong Buy based on 13 Buys and 1 Hold. The average analyst price target of $19.14 implies upside potential of 18.6% to current levels. Shares have lost 37% year-to-date.
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