SM is 78% above its 52-week low
SM Energy (SM), an exploration and production company focused on South Texas, the Gulf Coast, and the Permian Basin, is 78.0% above its 52-week low despite the US upstream energy sector’s recent correction. SM’s strength could be due to its production growth in the Midland Basin and higher crude oil and natural gas prices. The company’s daily average Q2 production comprised ~42% crude oil, ~40% natural gas, and ~18% natural gas liquids.
SM’s adjusted EBITDAX[1.earnings before interest, tax, depreciation, depletion, amortization, and exploration expenses] grew 46% YoY (year-over-year) in the second quarter despite its production falling YoY. Meanwhile, its CFFO (cash flow from operations) grew 60% YoY.
A sharp crude oil price decline could weigh on the company’s cash flow and capital spending. Analysts expect SM’s CFFO to grow 38.9% YoY in fiscal 2018 to $716.1 million. The company expects to spend $1.31 billion this year, resulting in negative free cash flow. SM’s expected CFFO growth is lower than the industry median of 61%. SM’s forward price-to-CFFO ratio was 4.4x as of October 12, below the industry median of 5.1x.
Of the analysts covering SM Energy, 52.6% recommend “hold,” and 47.4% recommend “buy.” Their average target price of $35.70 for SM implies a ~19% upside to its current price.