On Monday, Truist Securities updated its outlook on shares of SM Energy (NYSE:SM), reducing the stock's price target to $46 from the previous $49, while keeping a Hold rating on the shares. The adjustment comes as the firm revises its financial models and forecasts for the years 2024 through 2026, in response to changes in their price assumptions.
The new price target of $46 is based on a combination of two valuation methods. The first method applies an enterprise value to EBITDAX (EV/EBITDAX) multiple of 3.0x, which is below the peer average of 3.9x, to the firm's estimated 2025 EBITDAX of $2,608 million. This estimate is slightly above the consensus figure of $2,487 million.
The second valuation method used by Truist Securities is based on a free cash flow to enterprise value (FCF/EV) yield assumption of 15.0%. This dual approach to valuation allows for a balanced view of the company's future financial performance.
SM Energy's stock price target has been revised downward as Truist Securities adjusts its investment model to reflect updated projections and market conditions. The firm's analysis indicates a more conservative valuation compared to industry peers, which is reflected in the reduced price target.
Investors and market watchers will note the maintained Hold rating, suggesting that Truist Securities advises a neutral position on the stock at this time, based on their current assessment of SM Energy's financial outlook and market valuation.
In other recent news, Denver-based SM Energy Co has amended its credit agreement to facilitate the acquisition of oil and gas assets in the Uinta Basin. The company's strategic expansion is backed by Wells Fargo (NYSE:WFC) Bank, National Association, and other lenders. In addition, SM Energy has been garnering attention from various analyst firms such as RBC Capital, Truist Securities, and BMO Capital, following its acquisition of XCL Resources.
RBC Capital maintains a Sector Perform rating for SM Energy and has raised its price target from $50.00 to $54.00. Truist Securities, however, adjusted its price target for SM Energy to $49.00, maintaining a Hold rating. BMO Capital also maintained its Market Perform rating, projecting significant enhancements to Free Cash Flow Per Share, Earnings Per Share, and Cash Flow Per Share due to the company's venture into the Uinta Basin.
Roth/MKM kept its Buy rating on SM Energy, suggesting the company's estimated production of approximately 195,000 barrels of oil equivalent per day may be conservative. These are recent developments that reflect SM Energy's ongoing efforts to maintain stable production levels and implement operational efficiencies.
InvestingPro Insights
In light of Truist Securities' revised price target for SM Energy, a look at the current data from InvestingPro provides additional context for investors considering the stock. SM Energy's market capitalization stands at $5.36 billion, with a notably low P/E ratio of 7.27, suggesting that the stock may be undervalued relative to earnings.
The company's strong gross profit margin at 81.55% over the last twelve months as of Q1 2024 indicates efficient operations, despite a revenue decline of 24.1% during the same period. Moreover, the firm's dividend yield of 1.54% and a 20% dividend growth reflect a commitment to shareholder returns, which has been consistent for 32 consecutive years.
InvestingPro Tips highlight that analysts have tempered their earnings expectations for the upcoming period, which aligns with the cautious stance taken by Truist Securities. However, the company's stock has seen a large price uptick of 30.96% over the last six months, signaling robust market confidence.
For investors seeking further insights and tips, InvestingPro offers additional analysis, including the fact that the company has been profitable over the last twelve months and analysts predict profitability will continue this year. For comprehensive analysis and to unlock all the available tips, use coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
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