KeyBanc analyst Leo Mariani raised the price target on SM Energy (NYSE: SM) to $28.00 (from $20.00) while maintaining a Overweight rating.
This is somewhat surprising because Leo uses a very conservative oil price deck and his price target are normally near the bottom of the pack.
I plan to finish updating the SM Energy profile today.
SM Energy Update - April 21
SM Energy Update - April 21
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: SM Energy Update - April 21
I have posted the update profile for SM Energy to the EPG website.
SM is up more than 150% year-to-date, but today I would rate it at the bottom of the companies in our Small-Cap Growth Portfolio for additional upside from where the stocks are trading today. At the beginning of the year SM was trading at less than 1X 2020 operating cash flow per share and just less FEAR caused the stock to rally. They were free cash flow positive in 2020 and they used the cash to pay down debt. That made the bankers happy and they extended their credit facility.
SM now has plenty of liquidity and lots of running room. They can fund this year's drilling program entirely with cash flow from operations and grow production by approximately 5%. The problem is that the bankers required them to hedge a lot of this year's oil production in the low $40s/bbl, so they need to work off those hedges before they can return to profitability. If WTI is still over $60/bbl in 2022 this stock will be a "Screaming Buy" from where it is trading today.
If you are a long-term investor, SM does have a lot of upside in the Permian Basin and the Eagle Ford. Long dated Call Options are risky, but in this case they could generate significant upside if we can move into "Post Pandemic World".
SM is up more than 150% year-to-date, but today I would rate it at the bottom of the companies in our Small-Cap Growth Portfolio for additional upside from where the stocks are trading today. At the beginning of the year SM was trading at less than 1X 2020 operating cash flow per share and just less FEAR caused the stock to rally. They were free cash flow positive in 2020 and they used the cash to pay down debt. That made the bankers happy and they extended their credit facility.
SM now has plenty of liquidity and lots of running room. They can fund this year's drilling program entirely with cash flow from operations and grow production by approximately 5%. The problem is that the bankers required them to hedge a lot of this year's oil production in the low $40s/bbl, so they need to work off those hedges before they can return to profitability. If WTI is still over $60/bbl in 2022 this stock will be a "Screaming Buy" from where it is trading today.
If you are a long-term investor, SM does have a lot of upside in the Permian Basin and the Eagle Ford. Long dated Call Options are risky, but in this case they could generate significant upside if we can move into "Post Pandemic World".
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group