Morgan Stanley downgraded Devon Energy Corp to equal-weight from overweight, and said the U.S. exploration and production company would be hurt if there was a lag in the recovery of natural gas prices.

Webelieve expectations for an early 2010 recovery in natural gas prices are building, and DVN is among the most exposed names in our coverage universe should the recovery lag, Morgan Stanley said.

It expects U.S. natural gas volumes to decline about 8 percent over the course of 2009. U.S. natural gas prices hit their lowest level in nearly eight years in September.

Asset sales is a near-term catalyst for the company, but expectations are high and may disappoint in case of negative near-term well results, Morgan Stanley said.

Investors are eagerly awaiting results from the Kaskida well Devon is drilling with a partner deep in the Gulf of Mexico, as it could determine the value of a stake the company aims to sell in its oil-rich holdings there. [ID:nN25465479]

Morgan Stanley also removed its price target on the stock and said it sees better risk-adjusted returns elsewhere in the sector.

Shares of the Oklahoma City-based company were down 2 percent at $70.63 Wednesday morning on the New York Stock Exchange. (Reporting by Arundhati Ramanathan in Bangalore; Editing by Himani Sarkar)