SM Energy - Dividend and Raymond James nonsense

[Petroleum economist]

DENVER, June 26, 2025 /PRNewswire/ -- SM Energy Company (NYSE: SM) today announces that its Board of Directors approved the quarterly cash dividend of $0.20 per share of common stock outstanding. The dividend will be paid on August 4, 2025, to stockholders of record as of the close of business on July 18, 2025.

2025 shareholder returns
• The announced SM dividend is per expectation.
• SM energy has announced earlier that it would continue to pay the $ 0.20 dividend until the debt/EBITDA falls below 1.0. Then share buybacks will start.
• As the ratio in Q2 still is 1.2-1.3 there will be no share buybacks in Q2 or Q3.
• Shareholder returns in 2025 thus will be 3.2%.

2026 shareholder returns
• The FCF in Q3 and Q4 2025 should pick up with production and a lower H2 capex.
• SM Energy has indicated that Q3 production will be higher than Q2 (197-203 K BoE/d) and that Q4 production will be equal to Q3.
• Based on the 2025 outlook of 200-215 K BoE/d I expect H2 production to be 210-212 K BoE/d.
• SM Energy targets a 2025 capex of $ 1.3 B, of which $ 415 M was already spend in Q1 and $ 380 M is targeted for Q2.
• This means that the capex in Q3 and Q4 will be about $ 260 M.
• The higher production and the lower capex combined will boost the FCF with $ 170-200 M/quarter, thus quickly reducing the debt and lowering the debt/EBITDA ratio.
• Using WTI = $ 65/bbl I expect that SM Energy will reach a debt/EBITDA ratio of< 1.0 by the end of 2025. This mean that share buybacks can start in 2026.
• Assuming a payout of 40-50% of the FCF to shareholders (dividends and share buybacks combined) returns in 2026 can jump to a very attractive 10-14%

Raymond James nonsense
• Raymond James analyst John Freeman last week downgraded SM Energy from "Outperform" to "Underperform".
• John Freeman expects that oil prices will slide to $60/bbl for an extended period as geopolitical risk premiums unwind.
• Ray Jay identified SM Energy as among the highest beta oil stocks in his coverage universe, making it particularly sensitive to oil price movements.
• It also highlighted the SM Energy below-average core inventory life in the Permian Basin as a key concern, which puts "increasing pressure on the Uinta to fill the gap."

I do not know where Raymond James gets their data for the analysis
• SM Energy over the last six years booked 377 M BoE in the Permian versus a production of 316 M BOE, thus delivering a solid Reserves Replacement Ratio of 377/312 = 1.22. There is no shortage of an inventory life.
• The 2024 proven reserves of 678 M BoE are equivalent to 9.0 years of 2025 production, above the industry average of 8.8 years.
• SM Energy has an oil cut of 52.6% and its profits are less sensitive to oil price variations than the average oil and gas company. “Highest beta oil stocks in his coverage universe” sounds a bit like statistical nonsense. Further I do not expect that oil prices will slide to $ 60/bbl.

I believe the best thing to do with the Raymond James advice is to ignore it. It has no basis.

SM Energy ranks a high 3rd in my 84 oil and gas company ranking.

[allen46]

Thanks Harry, SM is one of my biggest holdings.

[ChuckGeb]

I think there entry into the UNITA Basin is undervalued. Additionally they stepped into a bunch of ducs there and are completing a little more wells than they are drilling. Looking forward to stock moving results when oil & gas are back in favor. Not likely in near term but should set up nicely for 2026. Good time to watch and accumulate.

[dan_s]

TipRanks: "In the last 3 months, 12 ranked analysts set 12-month price targets for SM. The average price target among the analysts is $37.64."

SM is one of my Top Picks in the Sweet 16. It closed on June 27 at $25.10.

It is free cash flow positive, and IT HAS A LOT OF HIGH-QUALITY "RUNNING ROOM"

On 6/24/2025 Leo Mariana a 5 Star analyst (per TipRanks) at Roth MKM rated SM a Buy with a price target of $41.00