SM
Re: SM
For one thing, the First Call Q2 revenue forecast of $473 million is way off. SM's revenues in the first quarter were $561 million (including cash settlements on hedges) and revenues should be higher in Q2. Realized oil and gas prices will be higher in Q2, offsetting a dip in production.
Some investors may worry about their production mix (47% Ngas, 30% crude oil and 23% NGLs). Plus, production did peak in Q1 and will be on decline all year BUT year-over-year production will be up around 14%. Why? Because they sold some producing assets in Q2 to shore up the balance sheet.
Take a look at the HUGE spread in the EPS forecasts submitted to First Call. $-2.66 to $1.23. That spread frightens many investors and it tells me that a lot of analysts cannot figure this one out. I have a very high level of confidence in my forecast model for SM, primarily because they give accurate guidance. My FVE of $105/share is just 6X CFPS and I think that is quite conservative. They are funding the majority of their capital program with cash flow from operations, which should justify a high trading multiple.
Over the years I have seen similar situations (stocks trading way below my fundamental valuation). Eventually the market figures it out, but it can take quite awhile.
BTW I have asked SM several times to host luncheons for us, but so far they have turned me down. Management needs to get out and tell their story. If any of you want to call their IR department and recommend us, please do so.
Some investors may worry about their production mix (47% Ngas, 30% crude oil and 23% NGLs). Plus, production did peak in Q1 and will be on decline all year BUT year-over-year production will be up around 14%. Why? Because they sold some producing assets in Q2 to shore up the balance sheet.
Take a look at the HUGE spread in the EPS forecasts submitted to First Call. $-2.66 to $1.23. That spread frightens many investors and it tells me that a lot of analysts cannot figure this one out. I have a very high level of confidence in my forecast model for SM, primarily because they give accurate guidance. My FVE of $105/share is just 6X CFPS and I think that is quite conservative. They are funding the majority of their capital program with cash flow from operations, which should justify a high trading multiple.
Over the years I have seen similar situations (stocks trading way below my fundamental valuation). Eventually the market figures it out, but it can take quite awhile.
BTW I have asked SM several times to host luncheons for us, but so far they have turned me down. Management needs to get out and tell their story. If any of you want to call their IR department and recommend us, please do so.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group