SM Energy Update

[dan_s]

SM Energy Company (SM): An updated Net Income & Cash Flow Forecast model has been posted under the Sweet 16 Tab.

My Fair Value Estimate remains $150/share, compared to First Call's Price Target of $101.48.

Reported earnings of just $0.10 EPS for the quarter must have spooked a hedge fund manager who hit the sell button at the open. A lot of shares traded during the first hour and SM has a rather small float (only 67 million shares outstanding).

Year-end reserve report was great and F&D costs keep coming down. Adjusted Earning Per Share were slightly less than my forecast but no big deal. G&A and taxes came in higher than my forecast.

SM uses the Successful Efforts method of accounting which can cause some big swings in "reported" earnings. For example, the big impairment charge would not have been take if they were on the Full-Cost Method. So ignore EPS and focus on cash flow per share.

Cash Flow Per Share by year:
2011A = $11.86
2012A = $13.79
2013A = $19.74 (CFPS for the 4th quarter was $5.19)
2014E = $23.12 (per my forecast model)

I see nothing to justify this morning's selloff.

[setliff]

while fundamentals look great there has been a lot of technical damage here. it would not surprise me to see repair of this damage take a while. todays action, particularly this afternoon going into the close will tell a lot.

[dan_s]

I just listened to the CC replay. The ONLY negative was some disappointment in the northern part of their Eagle Ford acreage but they think new completion methods should help.

All this did was knock out some 3P reserves, which may end up coming back in the future.

Lots of positives (for me at least) in their Permian Basin program and in East Texas.

[setliff]

not enough buying going into the close yesterday to change the technicals, which look very bad now.

then comes this--

DOWNGRADE: SM Energy (SM) downgraded by Howard Weil from Sector Outperform to Sector Perform. 02/20 07:39 AM PT down to 93 from 106.

i suspect sm is going to experience similar problems as line did.

[dan_s]

SM is going to be fine. Fundamentals are great and so are cash flows. It will just take a few days for the weak hands to flush out. Yesterday's big sell off at the open was a shocker.

[dan_s]

It appears that SM found a floor. I think it is a heck up a BUY up to $80.