Energy Prospectus

SM Energy currently ranks sky high in my 84 oil and gas company ranking. This week SM Energy sits as 2nd, although in some recent weeks it even has ended up sitting at the top of the ranking. The reason for the high ranking is that the SM Energy share price in 2025 has dropped substantially, while its fundamentals are strong. The SM Energy share price is down -22% in 2025, after being down -29% in early March.

Only six out of the 84 oil and gas companies that I track have fared worse in 2025: Crescent Energy (-23%), Civitas Resources (-24%), Lotus Creek (-28%), Gran Tierra (-29%), Vital Energy (-31%), and VOC trust (-32%).

The reasons for the weak 2025 SM Energy share price performance are shrouded in clouds.

SM Energy fundamentals
SM Energy has strong fundamentals. 2024 proven reserves (678 M BoE) were up 73 M BoE (12%) due to the acquisition of XCL assets in the Uinta basin. The Reserves Replacement Ratio (RRR) over the last six years (2019-2024) has been an excellent 1.19, well above industry average of 0.85-0.90. The reserves are equivalent to 8.8 years of 2025 production.

Production in Q4 2024 (208 K BoE/d) was near the bottom end of the 204-220 K BoE/d guidance, as production was reduced by 3 K BoE/d due to 3rd party facilities shutdowns. Reserves and RRR combined allow future production to be flat or to grow a minor rate (0-2%/year). 2025 guidance (200-215 K BoE/d) has a mid-point similar to the Q4 production (208 K BoE/d). After 2025 production can grow to 228-230 K BoE/d in 2029.

The XCL acquisition of $ 2.0 B was paid 100% in cash (no new shares). As a consequence, the SM Energy balance sheet weakened. Late 2024 the equity ratio (=equity/balance sheet total) was a mediocre 49.4% and the long-term debt was up to $ 3.068 M. With a strong FCF in 2025 the balance sheet will recover. In late 2025 the equity ratio can be up to a decent 57-58% and the debt will have reduced to $ 2,360 M (debt/EBITDA is a good 0.97).

For 2025, with WTI at $ 70-75/bbl, I expect for SM Energy an eps of $ 8.80-9.40. This results in a very low PE of only 3.0-3.4. The eps in 2029 can increase to $ 10.10-11.60 (PE=2.6-3.0).
Apart from Vital Energy (2.0-2.1) and Saturn Oil and gas (2.1-2.7) SM Energy has the lowest PE in 2025 of all the companies that I track.

In 2025 SM Energy will pay a dividend of $ 0.80. This is equivalent to a yield of 2.1%. SM has indicated that share buybacks will restart after the debt/EBITDA ratio falls to < 1.0. This can happen in H2 2025.
I expect share buybacks to reach $ 200-250 M in H2 2025, adding 4.5-5.5% to the dividend for a total 6.6-7.6%. From 2026 onwards shareholder returns can increase to a high 15-18%.

Future share price
With such strong fundamentals It is a mystery to me why SM Energy share price is so low. I guess all that it requires is a bit of patience. I expect the share price to go up to $ 50- 60. This is in line with Dan’s and other analysts targets. At a share price of $ 50-60 the PE would drop to a more normal 6-7 and the yield to a decent 7.5-9%.

I agree 100%.

A company of this size and quality should be drawing a lot more attention.

My take is that Wall Street doesn't favor multi basin acquistions. Perfect example is Devon Energy and their Bakken acquisition Although my view is that Uinta Basin has stellar economics and will result in long term benefits, the market generally places a steep discount on these moves. IMHO

It always amazes me how the Wall Street Gang does not trust the management teams of these highly successful companies. 90% of stocks decline when they announce accretive acquisitions and rebound when actual results prove that the transactions was a wise move.

Unfortunately Wall Street controls the market that controls the bid and the ask. With a long term view of fundamentals and the hazardous market place that controls the price of commodity companies, financial goals can be achieved successfully. Short term ebbs and flows however are fraught with good luck on timing or significant disappointment. I am in the Goehring and Rozencwaijg camp in that I can see the direction of the fundamentals but it is near impossible for an educated individual investor to get the timing correct.