Tuesday, an analyst at JPMorgan (NYSE:) increased the price target for SM Energy (NYSE:) to $54.00, up from the previous $50.00, while maintaining an Overweight rating on the stock. The adjustment follows SM Energy’s recent completion of the XCL acquisition on October 2. The company is currently in the process of integrating the new assets and formulating a detailed drilling schedule.
SM Energy’s initial guidance, which projected a 45% year-over-year oil growth at $1.4 billion in capital expenditures, was based on a broad approach. The company is now refining its strategy, aiming to establish a pad-by-pad drilling plan. At the time of the acquisition, SM Energy operated nine rigs and announced intentions to reduce this number to 6-7 rigs by the end of 2025.
Analysts are anticipating updates on the timing of the planned rig reductions and the company’s production outlook leading into 2025. Uncertainties remain regarding the future production trajectory. For fiscal year 2025, JPMorgan estimates SM Energy’s oil production at 105 thousand barrels of oil per day (MBo/d), driven by $1.4 billion in capital expenditures. This estimate is slightly below the street consensus, which forecasts 108 MBo/d at the same level of capital expenditures.
Looking ahead to 2026, SM Energy is expected to achieve modest oil growth of 106 MBo/d with reduced capital expenditures of $1.25 billion, indicating improved capital efficiency compared to the current street consensus of 105 MBo/d and $1.41 billion in capital expenditures. The analyst’s third-quarter cash flow per share (CFPS) and EBITDA estimates are 4% and 3% below the street consensus, respectively, with production volumes relatively in line.
For the third quarter, JPMorgan projects oil production at 76.0 MBo/d, which aligns with the street consensus of 76.1 MBo/d. The capital expenditure estimate for the quarter is $304 million, closely matching the street consensus of $305 million. The firm anticipates $104 million in free cash flow (FCF) for the third quarter. While SM Energy has a share buyback program in place, the analyst does not expect any share repurchases during the quarter and forecasts the buyback will not restart until the company’s leverage falls below 1x in the second half of 2025.
Investors are also looking forward to initial disclosures of the Klondike well data. SM Energy brought the first four Klondike wells online in July, and the company had previously indicated it would share results after the wells reached 30 days of peak production. With updated commodity prices factored in, JPMorgan reaffirms the Overweight rating and raises the December 2025 price target to $54.
In other recent news, SM Energy has announced several significant developments. The company’s Board of Directors declared an increased quarterly cash dividend of $0.20 per share, indicating confidence in the company’s financial performance. SM Energy also appointed Beth McDonald as its new Executive Vice President and Chief Operating Officer, bringing a wealth of industry experience to the team.
In financial news, SM Energy has redeemed all outstanding 5.62% Senior Notes due 2025, worth $349.1 million, and issued $1.5 billion in new senior notes. This move is part of the company’s proactive approach to managing its capital structure. Additionally, SM Energy is set to acquire oil and gas assets in the Uinta Basin from XCL Resources, LLC, a move expected to expand its portfolio in the energy sector.
Analysts have offered insights into these developments. Truist Securities adjusted its price target for SM Energy to $49.00, maintaining a Hold rating, while RBC Capital Markets upheld its Sector Perform rating with a $54.00 price target. Both BMO Capital and Roth/MKM have maintained their respective ratings on SM Energy, 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. These are recent developments in the company’s operations.
InvestingPro Insights
Recent data from InvestingPro adds valuable context to SM Energy’s financial position and market performance. The company’s market capitalization stands at $5.24 billion, with a P/E ratio of 6.52, indicating a potentially undervalued stock relative to earnings. This aligns with JPMorgan’s optimistic outlook and increased price target.
SM Energy’s revenue for the last twelve months as of Q2 2024 was $2.34 billion, with a robust gross profit margin of 82.73%. The company’s operating income margin of 41.23% demonstrates strong operational efficiency, which could support the planned integration of XCL assets and future drilling activities.
InvestingPro Tips highlight SM Energy’s dividend consistency, having maintained payments for 32 consecutive years and raised dividends for the past three years. This track record of shareholder returns complements the company’s growth strategy and potential for improved capital efficiency mentioned in the JPMorgan analysis.
The stock’s recent performance has been noteworthy, with InvestingPro data showing a 10.89% return over the last week and a 14.2% return over the last month. This positive momentum aligns with the analyst’s bullish stance and increased price target.
For investors seeking a deeper understanding of SM Energy’s prospects, InvestingPro offers 10 additional tips, providing a comprehensive view of the company’s financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
