SM Energy (SM) Valuation Update - Jan 18
Posted: Thu Jan 18, 2024 3:40 pm
At the time of this post SM was trading for $35.56.
TipRanks: "In the last 3 months, 9 ranked analysts set 12-month price targets for SM. The average price target among the analysts is $46.33. The 9 price targets range from $39 to $60."
My current valuation is $58, which is just 4X annualized operating cash flow for 2023 to 2025.
SM's operating cash flow increased by ~$500 million year-over-year in 2023 while they increased production by just 4.4%.
> They've paid off a lot of debt and their balance sheet is now in very good shape with zero near-term debt issues.
> My 2024 forecast is based on just 3% YOY production growth.
> FCF is now funding dividends (just $0.18/Qtr), which I expect them to increase, and stock repurchases. < Per share value getting a boost from the stock buybacks.
> Lots of high-quality running room in the Midland Basin (running 4 rigs) and South Texas (running 2 rigs).
> Operating cash flow in 2024 should be $1.6 to $1.8 billion and D&C capex should stay in the $1.1 to $1.2 range.
> I do expect SM to make some small bolt-on acquisitions.
TipRanks: "In the last 3 months, 9 ranked analysts set 12-month price targets for SM. The average price target among the analysts is $46.33. The 9 price targets range from $39 to $60."
My current valuation is $58, which is just 4X annualized operating cash flow for 2023 to 2025.
SM's operating cash flow increased by ~$500 million year-over-year in 2023 while they increased production by just 4.4%.
> They've paid off a lot of debt and their balance sheet is now in very good shape with zero near-term debt issues.
> My 2024 forecast is based on just 3% YOY production growth.
> FCF is now funding dividends (just $0.18/Qtr), which I expect them to increase, and stock repurchases. < Per share value getting a boost from the stock buybacks.
> Lots of high-quality running room in the Midland Basin (running 4 rigs) and South Texas (running 2 rigs).
> Operating cash flow in 2024 should be $1.6 to $1.8 billion and D&C capex should stay in the $1.1 to $1.2 range.
> I do expect SM to make some small bolt-on acquisitions.