SM Energy (SM) Valuation Update - Aug 4

[dan_s]

At the time of this post SM was trading at $38.37.

I have updated my forecast/valuation model for their Q2 results, which beat my forecast and their updated guidance.
My valuation increases by $4 to $56.00/share.

I increased my valuation multiple by 0.25 to 4X annualized operating cash flow per share.
> SM has the habit of under-promising and over-delivering on their production guidance, so my forecast model is based on the high end of their production guidance.
> The Company's balance sheet is now in very good shape with no near-term debt problems.
> The only negative is that their production is a bit "gassy". Oil production is ~44% of current production, but was 75% of revenues in Q2.
> Despite the lower ngas and ngl prices, SM is generating more than enough operating cash flow to fund 100% of their D&C capex, pay dividends and fund their stock buyback program.
> If we finally get the multiple expansion that should follow the Big Paradigm Shift, SM has a lot of upside for us.

TipRanks: "In the last 3 months, 6 ranked analysts set 12-month price targets for SM. The average price target among the analysts is $42.50. Gabriele Sorbara at Siebert Williams Shank & Co (rated 5 Star by TipRanks) is the only analyst to adjust his price target since the Company announced strong Q2 results. He rates SM a BUY with a price target of $53.00."

Keep in mind that for all of the upstream companies, Q2 results should be the low point of the year.