SM Energy (SM) Update - Nov 1

[dan_s]

SM Energy's Q3 results beat my forecast by a wide margin, so I will be adding it back to our Small-Cap Growth Portfolio.

At the time of this post SM was trading for $36.55. My updated current valuation is $52.00.

What a difference a year makes! A year ago SM was trading for under $2.00 and did not look like it would survive. Oil, gas and NGL prices have doubled and their free cash flow is set to more than double in 2022.

Despite "Bad Hedges" that will still take a big bite out of Q4 cash flow, SM is on pace to generate over $1 Billion of operating cash flow in 2021 ($8.25/share). More important they will generate ~$325 million of free cash flow from operations this year and more than $700 million in 2022. The balance sheet is in good shape and they have a lot of running room in the Permian Basin and their South Texas Austin Chalk play where well results have significantly exceeded my expectation.

My updated forecast/valuation model has been posted to the EPG website.