At the time of this post SM was trading at $38.95, which is just 0.6% higher than the share price on 12-31-2023 and just slightly over book value per share.
Bottomline: SM Energy is in MUCH BETTER shape than it was a year ago and it has a lot of high-quality "Running Room" in three core areas.
On October 1, 2024, the Company closed two related Uinta Basin Acquisitions that added 44,000 Boepd of current production, including 38,700 barrels of crude oil per day. The transaction is immediately accretive to operating cash flow and based on my forecast they will report Q4 2024 free cash flow of approximately $200 million.
Total Q4 2024 production is expected to be 212,500 Boepd with a mix of 51% crude oil, 33% natural gas and 16% NGLs.
SM's 12-31-2024 reserve report should show PV10 Net Asset Value of just their proved reserves over $50 per share.
TipRanks: "In the last 3 months, 11 ranked analysts set 12-month price targets for SM. The average price target among the analysts is $52.09. The 11 price targets range from $42 to $60."
TipRanks' consensus forecast for 2025: Net Income per share of $7.37 and Operating Cash Flow per share of $17.93.
My updated forecast for 2025: Net Income per share of $9.89 and Operating Cash Flow per share (CFPS) of $21.08.
My current valuation is $81, which is just 4X annualized operating CFPS for 2024 through 2026. < There is nothing that justifies this stock trading for less than 2X operating CFPS.
If SM's Q4 results and their guidance for 2025 confirm by forecast model assumptions, I expect the Wall Street Gang to ramp up their price targets.
SM Energy (SM) is one of my Top Picks for 2025
SM Energy (SM) is one of my Top Picks for 2025
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: SM Energy (SM) is one of my Top Picks for 2025
SM is my Top Pick in the Sweet 16.
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Zacks Equity Research
January 23, 2025
Here at Zacks, we focus on our proven ranking system, which places an emphasis on earnings estimates and estimate revisions, to find winning stocks. But we also understand that investors develop their own strategies, so we are constantly looking at the latest trends in value, growth, and momentum to find strong companies for our readers.
Of these, value investing is easily one of the most popular ways to find great stocks in any market environment. Value investors use tried-and-true metrics and fundamental analysis to find companies that they believe are undervalued at their current share price levels.
In addition to the Zacks Rank, investors looking for stocks with specific traits can utilize our Style Scores system. Of course, value investors will be most interested in the system's "Value" category. Stocks with "A" grades for Value and high Zacks Ranks are among the best value stocks available at any given moment.
One stock to keep an eye on is SM Energy (SM). SM is currently sporting a Zacks Rank of #1 (Strong Buy) and an A for Value. The stock has a Forward P/E ratio of 5.50. This compares to its industry's average Forward P/E of 12.05. SM's Forward P/E has been as high as 8.92 and as low as 4.35, with a median of 6.16, all within the past year.
Another notable valuation metric for SM is its P/B ratio of 1.18. Investors use the P/B ratio to look at a stock's market value versus its book value, which is defined as total assets minus total liabilities. This stock's P/B looks attractive against its industry's average P/B of 1.98. Over the past year, SM's P/B has been as high as 1.64 and as low as 1.03, with a median of 1.30.
Value investors also love the P/S ratio, which is calculated by simply dividing a stock's price with the company's sales. This is a popular metric because sales are harder to manipulate on an income statement, so they are often considered a better performance indicator. SM has a P/S ratio of 1.95. This compares to its industry's average P/S of 2.21.
Finally, our model also underscores that SM has a P/CF ratio of 3.06. This figure highlights a company's operating cash flow and can be used to find firms that are undervalued when considering their impressive cash outlook. SM's P/CF compares to its industry's average P/CF of 6.74. Within the past 12 months, SM's P/CF has been as high as 4.21 and as low as 2.67, with a median of 3.30.
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Zacks Equity Research
January 23, 2025
Here at Zacks, we focus on our proven ranking system, which places an emphasis on earnings estimates and estimate revisions, to find winning stocks. But we also understand that investors develop their own strategies, so we are constantly looking at the latest trends in value, growth, and momentum to find strong companies for our readers.
Of these, value investing is easily one of the most popular ways to find great stocks in any market environment. Value investors use tried-and-true metrics and fundamental analysis to find companies that they believe are undervalued at their current share price levels.
In addition to the Zacks Rank, investors looking for stocks with specific traits can utilize our Style Scores system. Of course, value investors will be most interested in the system's "Value" category. Stocks with "A" grades for Value and high Zacks Ranks are among the best value stocks available at any given moment.
One stock to keep an eye on is SM Energy (SM). SM is currently sporting a Zacks Rank of #1 (Strong Buy) and an A for Value. The stock has a Forward P/E ratio of 5.50. This compares to its industry's average Forward P/E of 12.05. SM's Forward P/E has been as high as 8.92 and as low as 4.35, with a median of 6.16, all within the past year.
Another notable valuation metric for SM is its P/B ratio of 1.18. Investors use the P/B ratio to look at a stock's market value versus its book value, which is defined as total assets minus total liabilities. This stock's P/B looks attractive against its industry's average P/B of 1.98. Over the past year, SM's P/B has been as high as 1.64 and as low as 1.03, with a median of 1.30.
Value investors also love the P/S ratio, which is calculated by simply dividing a stock's price with the company's sales. This is a popular metric because sales are harder to manipulate on an income statement, so they are often considered a better performance indicator. SM has a P/S ratio of 1.95. This compares to its industry's average P/S of 2.21.
Finally, our model also underscores that SM has a P/CF ratio of 3.06. This figure highlights a company's operating cash flow and can be used to find firms that are undervalued when considering their impressive cash outlook. SM's P/CF compares to its industry's average P/CF of 6.74. Within the past 12 months, SM's P/CF has been as high as 4.21 and as low as 2.67, with a median of 3.30.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
-
Petroleum economist
- Posts: 279
- Joined: Wed Aug 23, 2023 7:01 am
- Location: The Netherlands
Re: SM Energy (SM) is one of my Top Picks for 2025
Why SM Energy is trading at a share price of only $ 40.07 is a riddle to me.
SM closed on the 2nd of October 2024 the acquisition of the XCL assets in the Uinta basin for $ 2.04 B. SM did this without raising further equity. On the 19th of February by means of the Q4/2024 results, we will hear the first results of the cooperation. I have full confidence that the results will be good. The Q4 eps (excluding non-cash hedging results) should be in the $ 1.90-2.00 range.
No doubt the large acquisition has placed in late 2024 some stress on the SM balance sheet. However, the 2025 FCF is so strong that by end of 2025 the balance sheet should be in a decent shape again.
The 715 M BoE 2023 proven reserves (update coming in Feb) and the high RRR should allow SM Energy to continue to grow the production in 2025 and onwards with the 3-4%/year, similar to the growth seen over the last few years.
With an estimated production of 220-224 K BoE/d (formal guidance yet to come), and with WTI=$ 70-75/bbl, SM Energy could achieve a 2025 eps of $ 8.90-10.32 (PE=3.9-4.5).
SM energy in the past has returned 55-60% of the FCF to shareholders. No doubt in 2025 this will be lower, but I can see shareholder returns in 2026 of 6-8%, to increase to > 10% in 2026.
SM Energy consistently ranks in the top 3 of my oil and gas ranking and deserves a much higher share price. Prices of $ 42-60 per share as quoted by analysts appear low to me. I expect SM Energy in late 2025/early 2026 to reach a share price well above these levels.
SM closed on the 2nd of October 2024 the acquisition of the XCL assets in the Uinta basin for $ 2.04 B. SM did this without raising further equity. On the 19th of February by means of the Q4/2024 results, we will hear the first results of the cooperation. I have full confidence that the results will be good. The Q4 eps (excluding non-cash hedging results) should be in the $ 1.90-2.00 range.
No doubt the large acquisition has placed in late 2024 some stress on the SM balance sheet. However, the 2025 FCF is so strong that by end of 2025 the balance sheet should be in a decent shape again.
The 715 M BoE 2023 proven reserves (update coming in Feb) and the high RRR should allow SM Energy to continue to grow the production in 2025 and onwards with the 3-4%/year, similar to the growth seen over the last few years.
With an estimated production of 220-224 K BoE/d (formal guidance yet to come), and with WTI=$ 70-75/bbl, SM Energy could achieve a 2025 eps of $ 8.90-10.32 (PE=3.9-4.5).
SM energy in the past has returned 55-60% of the FCF to shareholders. No doubt in 2025 this will be lower, but I can see shareholder returns in 2026 of 6-8%, to increase to > 10% in 2026.
SM Energy consistently ranks in the top 3 of my oil and gas ranking and deserves a much higher share price. Prices of $ 42-60 per share as quoted by analysts appear low to me. I expect SM Energy in late 2025/early 2026 to reach a share price well above these levels.
Regards
Harry
Harry
Re: SM Energy (SM) is one of my Top Picks for 2025
Thank you for the update, Harry. I do subscribe to your service and find value in it.
I also hold SM in my portfolio, and note that it is one of the few green stocks today in a sea of red.
The one question I have about the future shareholder returns is around your statement:
What might be more helpful is your estimate of "how likely" you see shareholder returns increasing > 10%. I don't know enough about SM to determine if they have a stated goal of growth through acquisition over time, which they could very well continue once their balance sheet is back in good shape this year, all things being equal. Or do they anticipate focusing strictly on building out their current holdings, financing the Capex through earnings.
I also hold SM in my portfolio, and note that it is one of the few green stocks today in a sea of red.
The one question I have about the future shareholder returns is around your statement:
Has there been any recent statement from SM's management that they do not anticipate making any additional acquisitions of a similar size of XCL's assets in the near future that would prevent them from increasing shareholder returns in 2026?SM energy in the past has returned 55-60% of the FCF to shareholders. No doubt in 2025 this will be lower, but I can see shareholder returns in 2026 of 6-8%, to increase to > 10% in 2026.
What might be more helpful is your estimate of "how likely" you see shareholder returns increasing > 10%. I don't know enough about SM to determine if they have a stated goal of growth through acquisition over time, which they could very well continue once their balance sheet is back in good shape this year, all things being equal. Or do they anticipate focusing strictly on building out their current holdings, financing the Capex through earnings.
Re: SM Energy (SM) is one of my Top Picks for 2025
Ray;
MY TAKE is that SM has more than enough to do after the big Uinta Basin Acquisition. I do not see them making another big acquisition. Small bolt-on acquisitions may be needed to fill in some blanks in their leasehold.
I do expect SM to report Q4 production in the upper half of their Q4 2024 guidance of 205,000 to 220,000 Boepd.
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Note from SM's Q3 press release dated 10-31-2024
Portfolio expansion sets up for an exciting 2025 with significantly increased scale:
Utah adds a third core area to the Company's top-tier portfolio. On October 1, 2024, the Company completed the previously announced $2.1 billion acquisition of an undivided 80 percent interest in the Uinta Basin assets of XCL Resources (and affiliated entities) and Altamont Energy (the "Uinta Basin Acquisitions"), adding high oil content production, approximately 63,300 net acres and multiple years of incremental quality drilling inventory. This acquisition of low breakeven assets is expected to be accretive to all financial metrics.
Three recent wells in Utah reached peak 30-day initial production rates testing the Douglas Creek in the Upper Cube. The test wells averaged 870 Boe/d per well at 94% oil.
Increased scale supports an increased borrowing base and lender commitments under the Company's senior secured revolving credit facility. The borrowing base was increased to $3.0 billion and lender commitments to $2.0 billion (see Financial Position and Liquidity below for further discussion).
Activity in the Klondike area of the Midland Basin includes the completion of eight wells that confirm oil saturated sandstone and the conventional nature of the play, in-line with the Company's geologic modeling. Two Klondike wells with average lateral lengths of approximately 11,500 feet have reached peak 30-day initial production rates, which averaged 918 Boe/d per well at 93% oil.
Initial wells targeting the Woodford-Barnett in the Sweetie Peck area continue to perform well with cumulative oil production exceeding the peer average in the area to date by more than 50%.
In South Texas, the Company has successfully fulfilled its obligation under its drill-to-earn arrangement to add 8,663 net acres in the northern, high oil/liquids content Austin Chalk.
President and Chief Executive Officer Herb Vogel comments: "2024 is proving to be a highly successful year for SM Energy. Exceptional operational performance, magnified by increased top-tier portfolio scale and substantial oil production growth, supports a strong balance sheet and upside value creation opportunity.
"Looking ahead, we are keenly focused on our Utah operations. Along with the investment community, we are invigorated by the opportunity to unlock value in an overlooked basin, and we expect to deliver results attributable to the crude profile, high margins and substantial scale that the Uinta Basin Acquisitions provide. In the fourth quarter, we expect to sequentially grow our oil and total production volumes by around 40% and 25%, respectively, and execute a smooth integration of the Utah operations. We will diligently work to develop a 2025-2027 operating plan that will optimize capital efficiency and demonstrate the value of our expanded portfolio.
"We are very excited to be among the core operators in Utah. We welcome our new employees and look forward to becoming actively involved in our new communities."
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SM is in the Sweet 16 because it is a rock solid growth company, that is free cash flow positive (approximately $200 million of FCF in Q4 2024) that has a lot of "Running Room". Production growth should be over 30% year-over-year in 2025. It pays a small dividend of $0.20/quarter (just 2% yield), which I don't see them increasing this year.
MY TAKE is that SM has more than enough to do after the big Uinta Basin Acquisition. I do not see them making another big acquisition. Small bolt-on acquisitions may be needed to fill in some blanks in their leasehold.
I do expect SM to report Q4 production in the upper half of their Q4 2024 guidance of 205,000 to 220,000 Boepd.
------------------------
Note from SM's Q3 press release dated 10-31-2024
Portfolio expansion sets up for an exciting 2025 with significantly increased scale:
Utah adds a third core area to the Company's top-tier portfolio. On October 1, 2024, the Company completed the previously announced $2.1 billion acquisition of an undivided 80 percent interest in the Uinta Basin assets of XCL Resources (and affiliated entities) and Altamont Energy (the "Uinta Basin Acquisitions"), adding high oil content production, approximately 63,300 net acres and multiple years of incremental quality drilling inventory. This acquisition of low breakeven assets is expected to be accretive to all financial metrics.
Three recent wells in Utah reached peak 30-day initial production rates testing the Douglas Creek in the Upper Cube. The test wells averaged 870 Boe/d per well at 94% oil.
Increased scale supports an increased borrowing base and lender commitments under the Company's senior secured revolving credit facility. The borrowing base was increased to $3.0 billion and lender commitments to $2.0 billion (see Financial Position and Liquidity below for further discussion).
Activity in the Klondike area of the Midland Basin includes the completion of eight wells that confirm oil saturated sandstone and the conventional nature of the play, in-line with the Company's geologic modeling. Two Klondike wells with average lateral lengths of approximately 11,500 feet have reached peak 30-day initial production rates, which averaged 918 Boe/d per well at 93% oil.
Initial wells targeting the Woodford-Barnett in the Sweetie Peck area continue to perform well with cumulative oil production exceeding the peer average in the area to date by more than 50%.
In South Texas, the Company has successfully fulfilled its obligation under its drill-to-earn arrangement to add 8,663 net acres in the northern, high oil/liquids content Austin Chalk.
President and Chief Executive Officer Herb Vogel comments: "2024 is proving to be a highly successful year for SM Energy. Exceptional operational performance, magnified by increased top-tier portfolio scale and substantial oil production growth, supports a strong balance sheet and upside value creation opportunity.
"Looking ahead, we are keenly focused on our Utah operations. Along with the investment community, we are invigorated by the opportunity to unlock value in an overlooked basin, and we expect to deliver results attributable to the crude profile, high margins and substantial scale that the Uinta Basin Acquisitions provide. In the fourth quarter, we expect to sequentially grow our oil and total production volumes by around 40% and 25%, respectively, and execute a smooth integration of the Utah operations. We will diligently work to develop a 2025-2027 operating plan that will optimize capital efficiency and demonstrate the value of our expanded portfolio.
"We are very excited to be among the core operators in Utah. We welcome our new employees and look forward to becoming actively involved in our new communities."
---------------------
SM is in the Sweet 16 because it is a rock solid growth company, that is free cash flow positive (approximately $200 million of FCF in Q4 2024) that has a lot of "Running Room". Production growth should be over 30% year-over-year in 2025. It pays a small dividend of $0.20/quarter (just 2% yield), which I don't see them increasing this year.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: SM Energy (SM) is one of my Top Picks for 2025
Thank you very much Dan... this is what I was looking for.
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Petroleum economist
- Posts: 279
- Joined: Wed Aug 23, 2023 7:01 am
- Location: The Netherlands
Re: SM Energy (SM) is one of my Top Picks for 2025
Ray,
I cannot look inside the head of SM Energy management but looking at the SM track record over the last five years, I do not expect further acquisitions after the 2024 XCL acquisition. There are no management statements that I know off that the strategy is to look for further acquisitions.
Over the last five years (2019-2023) SM Energy has added 323 M BoE (97%) to its proven reserves through autonomous bookings and only 11 M BoE through small acquisitions. There is no culture of small acquisitions.
The Reserves Replacement Ratio (RRR) the last three years is so high (2.71 in 2020, 1.86 in 2022 and 2.21 in 2023), that in combination with the proven reserves of 605M BoE (2023) + 110 M BoE (XCL) SM can continue to grow production over the next 4-5 years without further acquisitions.
The current state of the balance sheet does not allow further acquisitions. Acquisitions are not possible without issuing shares, which goes against the stated intent of returning funds to shareholders by means of dividends and share backs.
I think the XCL acquisition was made because SM saw significant upside in applying SM expertise to the XCL assets in the Uinta basin. In addition, I expect that the economics of wells in the Uinta basin are better than that of wells in the Midland and the Austin Chalk, thus offering efficiency gains.
The FCF of SM with WTI = $ 70/bbl should be such that returns of > 10% to shareholders starting 2026 are possible if SM returns to a policy of routing 55-60% of the FCF to shareholders.
I cannot look inside the head of SM Energy management but looking at the SM track record over the last five years, I do not expect further acquisitions after the 2024 XCL acquisition. There are no management statements that I know off that the strategy is to look for further acquisitions.
Over the last five years (2019-2023) SM Energy has added 323 M BoE (97%) to its proven reserves through autonomous bookings and only 11 M BoE through small acquisitions. There is no culture of small acquisitions.
The Reserves Replacement Ratio (RRR) the last three years is so high (2.71 in 2020, 1.86 in 2022 and 2.21 in 2023), that in combination with the proven reserves of 605M BoE (2023) + 110 M BoE (XCL) SM can continue to grow production over the next 4-5 years without further acquisitions.
The current state of the balance sheet does not allow further acquisitions. Acquisitions are not possible without issuing shares, which goes against the stated intent of returning funds to shareholders by means of dividends and share backs.
I think the XCL acquisition was made because SM saw significant upside in applying SM expertise to the XCL assets in the Uinta basin. In addition, I expect that the economics of wells in the Uinta basin are better than that of wells in the Midland and the Austin Chalk, thus offering efficiency gains.
The FCF of SM with WTI = $ 70/bbl should be such that returns of > 10% to shareholders starting 2026 are possible if SM returns to a policy of routing 55-60% of the FCF to shareholders.
Last edited by Petroleum economist on Tue Jan 28, 2025 2:03 am, edited 1 time in total.
Regards
Harry
Harry
Re: SM Energy (SM) is one of my Top Picks for 2025
The Wall Street Gang will take a few more good quarters to figure out how under-valued SM is. This company has a solid management team. I have been following it for over a decade.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group