Earlier today, UBS lifted its rating on Devon Energy Corporation (DVN - 66.24) to "buy" from "neutral," but cut its price target by $5 to $85. The analysts called the recent sector-wide sell-off "overdone," and suggested that now is a good time for bulls to jump in.
Going forward, there could be more price-target cuts in store for DVN. Thomson Reuters places the consensus 12-month price target on the security at $101.76, representing a substantial premium of roughly 53% to yesterday's closing price of $66.38. Moreover, the stock could also be prone downgrades, as Zacks currently reports that 61% of the analysts following the commodity company maintain a "buy" or better rating.
It appears that options players are bullish toward DVN, as evidenced by the stock's 10-day call/put volume ratio of 6.34 on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio arrives in the 83rd percentile of its annual range, signaling that traders on these exchanges have made bullish bets over bearish at a faster pace than usual over the past two weeks.
However, this recent trend toward calls may not be as optimistic as it would initially appear, as short interest for DVN jumped 11.7% over the past month. With buy-to-open call volume and short interest rising together, it's possible that short sellers are picking up optimistic options to hedge their pessimistic positions.
On the charts, DVN hasn't made many positive moves recently, underperforming the broader S&P 500 Index (SPX) by nearly 10% for the past 60 sessions. From a longer-term perspective, the stock has turned in a 5% gain for the year, but has lost over 15% in 2011 alone.
Since reaching a peak of $93.55 in March, the security has been ushered lower by its 10-week moving average. This downturn pushed DVN below the $70 level, where it has spent the past five weeks, and is in danger of closing yet another week below this mark. With resistance firmly intact, additional price-target cuts, or a change of heart from any of the bulls, could create an additional headwind for the natural gas and oil company.
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