SM Energy (SM): An updated Net Income & Cash Flow Forecast model has been posted under the Sweet 16 Tab.
One of our members in Dallas sent me an e-mail asking "What's up with SM?" Here is my response:
SM looks great to me. Adjusted net income beat my forecast and their cash flow from operations crushed my forecast. In fact, I had to tone down my forecast to keep my Fair Value Estimate at $150. First Call's Price Target is $91.67. My forecast is actually at the low end of the estimates submitted to First Call by the 26 analysts that cover the company.
My updated forecast model is attached. [On the conference call they said their current acreage could generate 15% annual production growth for several years, but I am assuming only 10% annual growth.]
I cannot explain why a company of this quality trades for less than 4X cash flow from operations. They have at least five years of low-risk drilling inventory. Half of their Eagle Ford acreage is "lower tier", but the other half is very good. They have significant upside in several new East Texas areas, Permian Basin and the Powder River Basin.
What you do is up to you, but selling Puts looks like a darn good idea to me.
Note that their Bakken oil production will pick up in Q3.