On Thursday, Roth/MKM maintained a Buy rating on SM Energy (NYSE: NYSE:SM), with a consistent price target of $52.00. The firm's analysis suggests that the company's 2025 production guidance, which estimates approximately 195,000 barrels of oil equivalent per day (Boepd), may be on the conservative side. This figure represents an increase of 35,000 Boepd compared to the midpoint of the 2024 guidance of 160,000 Boepd. However, it also implies a year-over-year organic decline of 8,000 Boepd, factoring in the addition of Uinta assets that contribute 43,000 Boepd.
SM Energy has highlighted that the anticipated 2025 production figures are preliminary high-level estimates. At the completion of the Uinta deal, the company plans to operate 9 rigs but expects to reduce this number later, which is the primary reason for the projected decrease in production, rather than well performance issues. Furthermore, SM Energy anticipates a capital expenditure (CapEx) of around $1.4 billion for 2025, marking an increase of $240 million from the previous year, despite the addition of three Uinta rigs in the near term.
The company has noted that Uinta's production exhibits a higher decline rate compared to its existing assets. In terms of financial strategy, SM Energy intends to finance the asset acquisition through available cash and new debt. The analyst from Roth/MKM projects an uptick in leverage from 0.3x in 2025 to 0.8x, assuming a West Texas Intermediate (WTI) crude price of $80. Additionally, the company is planning to hedge approximately 50% of its Uinta oil production in 2025 to mitigate potential price volatility.
In other recent news, SM Energy has been under the spotlight following its strong first-quarter results for 2024. Analysts at RBC Capital Markets have raised the firm's price target from $50.00 to $54.00, maintaining a Sector Perform rating. The company's successful implementation of growth initiatives, such as the development of wells in the new Permian 'Klondike' acreage and a drill-to-earn project in the Austin Chalk, have contributed to this positive outlook.
SM Energy has also revealed its operational strategy, which includes consistent share buybacks of approximately $60 million per quarter, maintaining production levels, and capitalizing on new drilling agreements. The company's operational efficiencies, such as substituting natural gas for diesel in fracking processes, are expected to reduce CO2 emissions and lower costs. These developments are anticipated to enhance the company's performance throughout 2024 and lead to a higher exit rate heading into 2025.
Simultaneously, Truist Securities has initiated coverage on SM Energy with a Hold rating, setting a price target of $51.00. The firm's analysis indicates a balanced production profile between the Midland Basin and Eagle Ford (NYSE:F) Shale, while recognizing the company's strong financial stability. However, Truist Securities noted that SM Energy's free cash flow generation remains moderate due to the company's oil production being less than half of its total output. The firm also mentioned that SM Energy might be exploring opportunities to expand its asset base, indicating a flexible approach to growth and operational strategy.
InvestingPro Insights
Recent data from InvestingPro indicates that SM Energy (NYSE: SM) is navigating the market with a solid financial posture. The company boasts a market capitalization of $5 billion and operates with a moderate level of debt, which aligns with their financial strategy mentioned in the article. The P/E ratio, a measure of the company's current share price relative to its per-share earnings, stands at 6.78—a figure that may attract value investors seeking lower-priced stocks with potential for growth. Additionally, the adjusted P/E ratio for the last twelve months as of Q1 2024 is 7.42, reflecting a slight increase that investors should consider.
InvestingPro Tips reveal that SM Energy has a track record of maintaining dividend payments for 32 consecutive years, with a notable dividend growth of 20.0% in the last twelve months as of Q1 2024. This consistency is a testament to the company's commitment to returning value to shareholders and may be appealing to income-focused investors. Furthermore, the company has been profitable over the last year, with a substantial 61.56% one-year price total return, which may interest growth-oriented investors.
For those looking to delve deeper into the financial health and future prospects of SM Energy, additional InvestingPro Tips are available, providing a comprehensive analysis. Interested readers can use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking further insights that could inform investment decisions.
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